<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
JMAR TECHNOLOGIES, INC.
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<PAGE> 2
[JMAR TECHNOLOGIES, INC. LOGO]
June 27, 2000
Dear Shareholder:
It is my pleasure to invite you to the JMAR Technologies, Inc. 2000 Annual
Meeting of Shareholders.
We will hold the meeting on Thursday, August 10, 2000 at 2:00 p.m. at the Hilton
La Jolla Torrey Pines Hotel, 10950 North Torrey Pines Road, La Jolla,
California. After the close of the formal portion of the meeting we will review
the major developments of 1999, answer your questions and discuss our future
prospects. We will also have a number of our key employees available to meet
with you.
This booklet includes the Notice of Annual Meeting and the Proxy Statement. The
Proxy Statement describes the business that we will conduct at the meeting and
provides additional information about JMAR's management.
Your vote is important. Whether or not you plan to attend the meeting, please
complete, date, sign and return the enclosed proxy card promptly. If you attend
the meeting and prefer to vote in person, you may do so.
We look forward to seeing you at the meeting.
Sincerely,
/s/ John S. Martinez
John S. Martinez, Ph.D.
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
JMAR TECHNOLOGIES, INC.
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
DATE: THURSDAY, AUGUST 10, 2000
TIME: 2:00 P.M.
PLACE: HILTON LA JOLLA TORREY PINES HOTEL
10950 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA
TO THE SHAREHOLDERS:
At our 2000 Annual Meeting, we will ask you to:
(1) Elect five (5) directors to serve for the next year or until
their successors are elected; and
(2) Transact any other business that may properly be presented at the
Annual Meeting.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
If you were a shareholder of record at the close of business on June 27, 2000,
you are entitled to vote at the Annual Meeting.
You are cordially invited to attend the meeting in person. However, to assure
your representation at the meeting, we urge you to mark, sign, date and return
the enclosed proxy card as promptly as possible in the enclosed postage-prepaid
envelope. If you do attend the meeting, you may then withdraw your proxy and
vote in person.
Sincerely,
/s/ Dennis E. Valentine
Dennis E. Valentine
Corporate Secretary
and Chief Financial Officer
San Diego, California
June 27, 2000
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED.
<PAGE> 4
PROXY STATEMENT FOR JMAR TECHNOLOGIES, INC.
2000 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this Proxy Statement and the enclosed proxy card because our Board
of Directors is soliciting your proxy to vote at the 2000 Annual Meeting of
Shareholders. This Proxy Statement summarizes the information you need to know
to cast an informed vote at the Annual Meeting. However, you do not need to
attend the Annual Meeting to vote your shares. Instead, you may simply complete,
sign and return the enclosed proxy card.
Along with this Proxy Statement, we are also sending you the JMAR Technologies,
Inc. ("JMAR" or "Company") 1999 Summary Annual Report and Financial Information
Appendix which includes our complete financial statements, together with the
report of the Company's Independent Auditors, the "Management Discussion and
Analysis" and other related information.
WHO IS ENTITLED TO VOTE?
We will begin sending this Proxy Statement, the attached Notice of Annual
Meeting and the enclosed proxy card on or about July 10, 2000 to all
shareholders entitled to vote. Shareholders who owned JMAR Common Stock at the
close of business on June 27, 2000 are entitled to vote. On this record date,
there were 22,143,701 shares of JMAR Common Stock outstanding. JMAR Common Stock
is our only class of outstanding capital stock.
WHAT CONSTITUTES A QUORUM?
A majority of our shareholders entitled to vote at the meeting must be present,
in person or by proxy, in order to constitute a quorum. We can only conduct the
business of the meeting if a quorum has been established. In order to conduct
the meeting and to vote to elect the directors, shareholders of record who are
present at the meeting in person or by proxy and who abstain, including brokers
holding customers' shares who cause abstentions to be recorded at the meeting,
will be considered present at the meeting and entitled to vote and they will
count toward the quorum.
HOW MANY VOTES DO I HAVE?
Each share of JMAR Common Stock that you owned at the close of business on June
27, 2000 entitles you to one vote. The proxy card indicates the number of votes
that you have.
HOW DO I VOTE BY PROXY?
Whether or not you plan to attend the Annual Meeting, we urge you to complete,
sign and date the enclosed proxy card and to return it promptly in the envelope
provided. Returning the proxy card will not affect your right to attend the
Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote, your
"Proxy" (one of the individuals named on your proxy card) will vote your shares
as you have directed. If you sign the proxy card but do not make specific
choices, your Proxy will vote your shares as recommended by the Board of
Directors as follows:
- "FOR" the election of all five nominees for director
If any other matter is presented, your Proxy will vote in accordance with the
recommendation of the Board of Directors, or, if no recommendation is given, in
accordance with his best judgment. At the time this Proxy Statement went to
press, we knew of no matters which needed to be acted on at the Annual Meeting,
other than those discussed in this Proxy Statement.
If you hold your shares of JMAR Common Stock in "street name" (that is, through
a broker, bank or other nominee) and you fail to instruct your broker, bank or
nominee as to how to vote such shares of common
1
<PAGE> 5
stock, your broker, bank or nominee may, in its discretion, vote your shares
"FOR" the election of the nominees for director set forth herein.
MAY I CHANGE MY VOTE AFTER I RETURN MY PROXY?
Yes. If you are a "record holder" of the shares (i.e., your shares are not held
in "street name") and you have returned the enclosed proxy card, you may change
your vote at any time before the vote is conducted at the Annual Meeting. You
may change your vote in any one of three ways:
- You may request another proxy card from JMAR's Corporate Secretary,
complete it and mail it to JMAR's Corporate Secretary.
- You may notify JMAR's Corporate Secretary by mail before the Annual
Meeting that you have revoked your proxy.
- You may attend the Annual Meeting and vote in person.
HOW DO YOU VOTE IN PERSON?
If you are a record holder of the shares and you plan to attend the Annual
Meeting and vote in person, we will give you a ballot form when you arrive. Your
voting in person at the Annual Meeting will take precedence over any prior
proxies you have given. However, if your shares are held in "street name" (i.e.,
in the name of your broker, bank or other nominee), you must obtain a legal
proxy from your broker, bank or other nominee and bring it to the Annual Meeting
in order to cast your vote in person.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL?
PROPOSAL 1:
Elect Five Directors
The five nominees for director who receive the most votes will be elected. So,
if a quorum exists and you do not vote for a particular nominee, or you indicate
"WITHHOLD AUTHORITY" to vote for a particular nominee on your proxy card, your
vote will not count either "for" or "against" the nominee. Our Certificate of
Incorporation does not permit cumulative voting.
WHO PAYS THE COST OF SOLICITING THESE PROXIES?
JMAR will pay all the costs of soliciting these proxies. In addition to mailing
proxy soliciting material, our directors, officers and employees also may
solicit proxies in person, by telephone or by other electronic means of
communication for which they will receive no compensation. We will ask banks,
brokers and other institutions, nominees and fiduciaries to forward the proxy
materials to their principals and to obtain authority to execute proxies. We
will reimburse them for their reasonable expenses.
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INFORMATION ABOUT JMAR STOCK OWNERSHIP
OWNERSHIP OF 5% OR MORE OF JMAR COMMON STOCK
The following lists all persons known by the Company to be the beneficial owner
of more than 5 percent of the Company's Common Stock as of June 27, 2000. A
person is deemed to be the beneficial owner of JMAR Common Stock, whether or not
such person has any economic interest therein, if such person directly or
indirectly has (or shares with others) voting or investment power with respect
to the JMAR shares or has the right to acquire beneficial ownership within sixty
days.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED TOTAL
---------------- ------------------ ----------
<S> <C> <C>
John S. Martinez
3956 Sorrento Valley Blvd. 1,483,511 6.40%
San Diego, CA 92121
</TABLE>
(1) Includes: (a) 448,965 shares owned of record by the John S. Martinez
Separate Property Trust, of which Dr. Martinez as trustee, has sole
voting and investment power; and (b) 1,034,546 shares of Common Stock
which are issuable upon exercise of currently exercisable warrants and
stock options.
OWNERSHIP OF JMAR COMMON STOCK BY MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of the
Company as of June 27, 2000 by each nominee for director, the "Named Officers"
(as defined in "Executive Compensation" on page 9 below) and by all director
nominees and executive officers as a group. The Company has also provided the
beneficial ownership for certain other executive officers who are not "Named
Officers". Except as otherwise noted, the following stockholders have sole
voting and investment power with respect to the shares. Information with respect
to beneficial ownership is based on information furnished to the Company by each
stockholder included in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------- ------------------ ------------------------
<S> <C> <C>
John S. Martinez(1) 1,483,511 6.40%
Marvin W. Sepe(2) 247,942 1.11%
Dennis E. Valentine(3) 197,208 (14)
James H. Banister, Jr.(4) 103,025 (14)
Richard M. Foster(5) 102,781 (14)
Vernon H. Blackman(6) 69,230 (14)
Joseph G. Martinez (7) 41,189 (14)
Barry Ressler(8) 40,819 (14)
C. Neil Beer(9) 40,699 (14)
E. Fred Schiele(10) 27,800 (14)
John H. Carosella 18,700 (14)
Leonid Yoffe(11) -- --
John P. Ricardi (12) -- --
All executive officers and
directors as a group
(13 persons)(13) 2,372,904 9.93%
</TABLE>
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(1) See footnote (1) to preceding table.
(2) Includes 241,618 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(3) Includes 170,403 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(4) Includes 77,859 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(5) Includes 50,134 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(6) Includes 51,668 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(7) Includes 34,684 shares which are issuable upon exercise of currently
exercisable stock options.
(8) Includes 31,667 shares which are issuable upon exercise of currently
exercisable stock options.
(9) Includes 36,676 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(10) Includes 19,467 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(11) Mr. Yoffe served as President of JMAR Precision Systems, Inc. until
March 1999 and has been on inactive status since November 26, 1999.
(12) Mr. Ricardi served as Vice President for Corporate Development of JMAR
until April 1999 and ceased being a JMAR employee as of December 31,
1999.
(13) Includes 1,748,722 shares which are issuable upon exercise of currently
exercisable stock options and warrants.
(14) Less than one percent.
ELECTION OF DIRECTORS
NOMINEES
We are asking the shareholders to elect a board of five directors at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's five nominees named below, all of whom are
presently directors of the Company. While the Company has no reason to believe
that any of the nominees will be unable to serve as a director, if such an event
should occur, the shares will be voted for such substitute nominee or nominees
as may be designated by the Board of Directors. The term of office of each
person elected as director will continue until the next Annual Meeting of
Shareholders or until his successor has been elected and qualified.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------- --- -------------------- --------------
<S> <C> <C> <C>
John S. Martinez, Ph.D. 70 Chairman of the Board and Chief 1987
Executive Officer of the Company
James H. Banister, Jr. 70 President of Piezomechanical Devices 1989
C. Neil Beer, Ph.D. 65 President of SECON 1988
Vernon H. Blackman, Ph.D. 70 Consultant 1991
Barry Ressler 59 Chief Executive Officer and Chairman of 1994
the Board of Triton Thalassic
Technologies, Inc.
</TABLE>
4
<PAGE> 8
JOHN S. MARTINEZ, PH.D., became Chairman of the Board, President, Chief
Executive Officer and a Director of the Company at its inception. He
relinquished the title of President in November 1998 at the time of the hiring
of Mr. Schiele. Prior to co-founding the Company in October 1987, he was
President of HLX Laser, Inc., an excimer laser development company and President
of Jamar Enterprises, a management and investment consultant to high-technology
companies. From 1976 to 1984, Dr. Martinez was President and Chief Executive
Officer of Physics International Company ("PI"), a high-technology research,
development and manufacturing company specializing in high-intensity energy
technology and X-ray generation equipment. During that period, PI's annual sales
grew from approximately $9,000,000 to over $42,000,000 and profits grew at a
compounded annual rate in excess of 32%. From 1961 to 1976, Dr. Martinez held a
number of management positions at TRW, Inc. He formed that company's High Energy
Laser program in 1970 and managed it until he left the company in 1976. Dr.
Martinez, a Ford Foundation and Atomic Energy Commission Fellowship holder,
earned his Ph.D. in Engineering Science from the University of California
(Berkeley) in 1962, his Bachelor's degree from Rensselaer Polytechnic Institute
(Troy, NY) in 1951 and is a graduate of the Oak Ridge School of Reactor
Technology. He served on active duty in the U.S. Marine Corps during the Korean
War and was discharged as a Captain in 1954. He is the holder or co-holder of
six patents. Dr. Martinez is the father of Joseph G. Martinez, Vice President,
General Counsel of the Company.
JAMES H. BANISTER, JR., has been a director since December 1989 and was a
consultant to the Company from September 1989 until March 1994. From October
1993 to September 1999 Mr. Banister was President, Chief Executive Officer and a
Director of Kinetic Ceramics, Inc. He sold Kinetic Ceramics in October 1999 and
formed a new company, Piezomechanical Devices, of which he is President and sole
owner. From August 1987 to June 1988 he was President and CEO of MSI, a
subsidiary of Olin Corporation supplying Signal Intelligence and electronic
warfare equipment and services. When that company was sold by Olin, Mr. Banister
retired to manage his personal investments. Mr. Banister was with Physics
International Company (which became a subsidiary of Olin Corp. in 1985), from
June 1964 to August 1987, successively holding the positions of Contracts
Manager, Director of Marketing and Contract Relations, Vice President and
Director of Administration and Senior Vice President responsible for finance and
administration. From 1953 to 1964, Mr. Banister was with Stanford Research
Institute, now SRI International, holding the position of Manager of Contract
Administration. Mr. Banister received a Bachelor of Science degree in Business
and Engineering administration from MIT and has taken graduate courses in law at
Golden Gate College. He has been an officer and director of several subsidiaries
of Physics International Company.
C. NEIL BEER, PH.D., has been a director since July 1988 and was an employee of
the Company from May 1991 until November 1992 and a consultant to the Company
from April 1993 to September 1993. Dr. Beer currently is the President of SECON,
a software and systems engineering company primarily supporting the national
intelligence community. Prior to that, he was the Vice President, Advanced
Programs of OAO Corporation and prior to that, was the Colorado Space Advocate,
responsible for the growth of Colorado's space industry. From September 1986 to
October 1989, he was President and Chief Executive Officer of Thermo
Technologies Corporation which develops advanced lasers, optics, signal
processing and energy conversion hardware. Previously, he was Deputy for
Strategic Defense, Military Applications, at Livermore National Laboratory.
During his career with the U.S. Air Force, Dr. Beer achieved the rank of Major
General and was deputy Chief of Staff, plans and programs, for the Air Force
Space Command. Earlier, while assigned to the office of the Secretary of
Defense, he worked with the White House staff on policy and support
requirements. Dr. Beer was associate professor of mathematics at the Air Force
Academy and a combat pilot in Southeast Asia. Dr. Beer graduated magna cum laude
with a B.S. degree in engineering from the University of Oklahoma and received
his doctorate in Operations Research in 1972 from that same University. Dr. Beer
is recipient of the NSIA Medal for Outstanding Achievement in Space.
VERNON H. BLACKMAN, PH.D., has been a director of the Company since July 1991
and from time to time, has been a consultant of the Company since December 1991.
Dr. Blackman served as Chairman of the Board and Chief Executive Officer of
Esscor, a training and simulation service company to the utility industry, from
December 1991 to July 1997. Dr. Blackman also served as Chairman of the Board,
President and Chief Executive Officer of JAYCOR from 1989 until March 1991.
JAYCOR is a high-technology company that supplies R&D services to various
agencies of the U.S. Government, primarily the Department of Defense. Prior to
joining JAYCOR, Dr. Blackman acted as a venture investor for his own account and
helped to fund the early stage development of several companies. Dr. Blackman
has also served on the Boards of Directors of several other public companies,
including Newport Pharmaceuticals International, Inc. (1967-1974); Maxwell
Laboratories, Inc. (1966-1974); Topaz, Inc. (1979-1983) at which time Topaz was
acquired by Square D Corporation; and Optical Radiation Corporation (1970-1995).
From 1974 to 1982, Dr. Blackman served as President, CEO and Chairman of the
Board of S-Cubed, a high technology company that provided services and products
to agencies of the U.S. Government. In 1959, Dr. Blackman co-founded MHD
Research which was acquired by Hercules Corporation in 1964. Dr. Blackman
received a BA in Physics from
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<PAGE> 9
Colgate University in 1951 and a Ph.D. in Physics from Princeton University in
1955, subsequent to which he served on the faculty as a research associate for 2
years.
BARRY RESSLER has been a director of the Company since January 1994. Mr. Ressler
is the Chief Executive Officer and Chairman of the Board of Triton Thalassic
Technologies, Inc. (T3I), a company engaged in the non-chemical treatment and
control of microorganism contaminated fluids for the automotive, food packaging,
pharmaceutical, paper, aquaculture and commercial shipping industries. Mr.
Ressler is also the President of STAR Associates, Inc., a company engaged in the
consultation, strategic planning and project funding of early stage industrial
process and therapeutic/diagnostic technologies. From 1983 to December 1993 he
served as Chief Executive Officer and Chairman of the Board of Universal
Voltronics Corporation (UVC), a public company that developed high-voltage
products for defense, medical and industrial applications. In March 1990, UVC
became a public subsidiary of Thermo Electron Corp. From 1963 until his
appointment as CEO and Chairman, he served in various capacities at UVC. Mr.
Ressler is a member of the Biotechnology Center External Advisory Board of the
University of Connecticut, advising the University on the expansion of
biotechnology research initiatives to foster University and Industry
collaborative activities. Mr. Ressler is also a member of the Nauticos Corp.
Sciences Business and Technology Advisory Board. Nauticos Corp. has developed
advanced side scan sonar, ROV and research protocols used in the discovery of
historic and contemporary sunken vessels. He is also a member of the Board of
Directors of CLI LTD in Sheffield UK, a company engaged in the controlled
lifting of heavy subsea objects (sunken submarines, historic wrecks and general
salvage and the emplacement of offshore pipelines and construction materials).
Mr. Ressler graduated from the Pratt Institute with a B.S. in Engineering
Science.
BOARD MEETINGS AND COMMITTEES; OTHER MATTERS
The Board of Directors of the Company held a total of six meetings during the
fiscal year ended December 31, 1999. Each director attended at least 75 percent
of the total number of Board meetings plus meetings of the committees of the
Board on which that particular director served. Only one director, John S.
Martinez, is an employee of the Company.
The Company's Audit Committee is the only standing Committee of the Board. The
Audit Committee annually recommends to the Board of Directors a firm of
certified public accountants to conduct audits of the accounts and affairs of
the Company. The Audit Committee also reviews accounting objectives and
procedures of the Company and the findings and reports of the independent
certified public accountants, and makes such reports and recommendations to the
Board of Directors as it deems appropriate. The Audit Committee held one meeting
during the fiscal year ended December 31, 1999. On May 5, 2000, the Board of
Directors adopted an Audit Committee Charter, setting forth the responsibilities
and duties of the Company's Audit Committee.
During fiscal year 1999, the entire Board of Directors acted as the Compensation
Committee. Meeting as the Compensation Committee, the Board of Directors
considered executive compensation matters at one meeting during the fiscal year
ended December 31, 1999. The Compensation Committee is empowered to make
decisions relating to the overall compensation arrangements for the Company's
executive officers and to any compensation plans in which officers and directors
of the Company are eligible to participate. See "Report of the Compensation
Committee" on page 12 for a description of the Company's executive compensation
policies.
The Company has no separately designated nominating committee.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
Directors are elected by a plurality of the votes. If more than five persons are
in nomination, the five nominees receiving the most votes will be elected as
directors. Once a quorum is established, abstentions or other non-votes will not
have any legal effect on the election of directors. See "Information About the
Annual Meeting and Voting" on pages 1 and 2.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF
ALL FIVE NOMINEES FOR DIRECTOR.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John S. Martinez, Ph.D. 70 Chief Executive Officer and Chairman of the Board
E. Fred Schiele 48 President, Chief Operating Officer and President
of JMAR Precision Systems
John H. Carosella 57 Senior Vice President, Corporate Development and
Director of Advanced Light Business Area
Dennis E. Valentine 44 Vice President Finance, Chief Financial Officer,
Chief Administrative Officer and Secretary
Joseph G. Martinez 42 Vice President and General Counsel
Richard M. Foster 67 President, JMAR Research
Marvin W. Sepe 44 President, JMAR Semiconductor
</TABLE>
Officers of the Company are elected annually by the Board of Directors and hold
office until their successors are duly elected and qualified.
The background and experience of Dr. Martinez is set forth above in "Election of
Directors-Nominees".
E. FRED SCHIELE joined JMAR in November 1998 as President and Chief Operating
Officer. In November 1999, Mr. Schiele was also appointed President of JMAR
Precision Systems. Before joining JMAR, Mr. Schiele served for two years as Vice
President and General Manager of the Semiconductor Systems Group at ADE
Corporation. There he was responsible for the manufacture and marketing of more
than $100 million annually in high-speed metrology equipment for the
semiconductor industry. From 1993 to 1996 he was Group Vice President, Laser
Systems, for Electro Scientific Industries, a leading manufacturer of laser
systems for microelectronic repair, trimming and micromachining. Mr. Schiele
received his B.S. in Physics in 1973 and an MBA in Management and Finance from
the University of Wisconsin in 1980.
JOHN H. CAROSELLA joined the Company in May 2000 as Senior Vice President of
JMAR and Managing Director of the Company's Advanced Light Business area. For
the prior three years, he was President of Osmic, Inc., a Michigan-based leading
developer and provider of advanced X-ray and neutron optical instruments and
products for the semiconductor lithography and medical equipment manufacturing
industries. Under his leadership, revenues more than doubled to $9 million per
year. Prior to joining Osmic, Mr. Carosella served for nine years as President
of Speedring Systems, Inc., a precision systems manufacturer where he
transformed the company from a $1.5 million per year aerospace contractor to a
$10 million per year supplier of precision electromechanical and optical
equipment for the commercial imaging markets. Mr. Carosella began his
professional career with Eastman Kodak Co., where for 13 years he served as an
optical products development engineer and as engineering services manager. Mr.
Carosella holds a Bachelor of Science degree in Physics from Worchester
Polytechnic Institute and a Master of Science degree in Optical Engineering from
the University of Rochester.
DENNIS E. VALENTINE has been the Vice President-Finance of the Company since
August 1990, Chief Financial Officer and Chief Administrative Officer since
March 1991 and Secretary since January 1992. Prior to joining the Company, Mr.
Valentine had over ten years of financial and management experience with Arthur
Andersen LLP. His experience at Arthur Andersen LLP included extensive work with
public companies and consultation regarding mergers and acquisitions. He was the
manager in-charge of the local office merger and acquisition program and was on
the Board of Advisors of the Orange County Venture Forum. Mr. Valentine received
a Bachelor of Science degree in Business from the University of Southern
California in 1978. He is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.
JOSEPH G. MARTINEZ joined the Company in June 1998 as Vice President and General
Counsel. From 1986 to 1998, Mr. Martinez was employed by Parker, Milliken,
Clark, O'Hara & Samuelian, P.C., a Los Angeles-based law firm which had served
as the Company's outside general corporate counsel since the
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<PAGE> 11
Company's inception in 1987. From 1993 to 1998, Mr. Martinez was a shareholder
of Parker, Milliken and was the principal attorney responsible for representing
the Company. From 1984 to 1986, Mr. Martinez was employed by another law firm in
Los Angeles. During his tenure at Parker, Milliken, Mr. Martinez specialized in
corporate, securities and general business law. In 1984 Mr. Martinez received
both a Juris Doctor degree from the University of California, Davis and a Master
of Business Administration from U.C. Berkeley (with an emphasis in Finance and
Accounting) in a Joint Degree Program. He received his B.A. in Genetics from
U.C. Berkeley in 1980. Mr. Martinez has been a member of the California State
Bar since 1984. Mr. Martinez is the son of Dr. John S. Martinez, the Company's
Chairman and Chief Executive Officer.
RICHARD M. FOSTER has been the President and a director of JMAR Research since
January 1994. From 1984 to 1990, he was Corporate Vice President and Director of
Marketing at Physics International Co. From 1968 to 1984, he was with TRW
Defense and Electronics and was Marketing Director for a number of product lines
including communication satellite systems, high energy lasers, power and
propulsion and the Physical Research Center. Mr. Foster also spent three years
in Washington D.C. as a TRW Senior Representative. He was a principal engineer
at Ford Aeronutronic in Newport Beach from 1960 to 1968 and an Air Force Captain
at Edwards AFB Rocket Propulsion Laboratory from 1957 to 1960. Mr. Foster
graduated cum laude with a B.S. and M.S. in Engineering from Stanford University
in 1957.
MARVIN W. SEPE joined JMAR Semiconductor in July 1996 as Executive Vice
President and General Manager and was elected President of that division in May
1997. Mr. Sepe was a director of the Company from July 1996 to December 1997.
For the prior 15 years, he was with TRW Components International Inc., a wholly
owned subsidiary of TRW Inc., where he served as Director of Business
Development for this division of TRW, which grew from $16,000,000 in sales to
nearly $40,000,000 under his strategic direction. Previously, Mr. Sepe held
other management positions within TRW including Marketing, Programs and
Engineering. Prior to joining TRW, Mr. Sepe held the position of Manager of
Worldwide Assembly Operations for Silicon General Inc. (1980-1981) with
manufacturing operations throughout Southeast Asia, as well as the U.S. He
served in the same role at Silicon Systems Inc. (1977-1980), a fast growing
start-up operation for custom semiconductors. Mr. Sepe attended Don Bosco
Technical Institute, California Polytechnic State University SLO, and holds a
Masters Degree in Business Administration from Pepperdine University. Mr. Sepe
has published a number of papers and taught numerous workshops on the economics
and use of semiconductors in space applications.
8
<PAGE> 12
EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company during each of the last three fiscal
years received by the Company's Chief Executive Officer and the other four most
highly compensated individuals serving as executive officers as of December 31,
1999 whose compensation (salary and bonus) exceeded $100,000. Also included are
two individuals (Messrs. Ricardi and Yoffe) who served as executive officers
during part of 1999 and would have been one of the four most highly compensated
officers had they served as executive officers at the end of 1999 (collectively,
the "Named Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1)(3) Awards(2)
-------------------------- --------------------
Shares Underlying
Name and Principal Salary Bonus Options and Warrants
Position Year ($) ($) (#)
------------------ ---- ------- -------- --------------------
<S> <C> <C> <C> <C>
John S. Martinez, 1999 192,500 0 52,000
Chief Executive 1998 200,592 87,474 77,960
Officer 1997 187,112 175,000 125,000
E. Fred Schiele, 1999 177,500 0 28,000
President and Chief Operating Officer of 1998 6,827(4) 20,000 150,000
JMAR and President of JPSI
Marvin W. Sepe, 1999 140,000 28,667 0
President of JSI 1998 125,000 13,500 0
1997 125,000 0 5,000
Joseph G. Martinez, 1999 135,000 0 13,500
Vice President, General Counsel 1998 69,578(5) 11,677 50,000
Richard M. Foster, 1999 125,000 20,000 0
President of JRI 1998 95,846 26,000 0
1997 100,000 15,000 25,000
John P. Ricardi, 1999 150,000 0 0
Senior Vice President 1998 145,331 0 0
for Sales and Marketing of JMAR Precision 1997 147,699 25,000 60,000
Systems (6)
Leonid Yoffe, Senior Vice President of 1999 140,000 0 0
Operations of JMAR Precision Systems (7) 1998 150,576 0 0
1997 146,905 65,000 0
</TABLE>
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each Named Officer was less than the lesser of
$50,000 or 10% of the total salary and bonus reported.
9
<PAGE> 13
(2) The Company did not grant any restricted stock or stock appreciation
rights or make any long term incentive plan payments during the fiscal
years ended December 31, 1999, 1998 and 1997.
(3) Includes bonus payments under the Management Incentive Bonus Plan (see
page 14) earned by the Named Officers in the year indicated for
services rendered in such year, but which were paid in the following
year.
(4) Compensation is for one month.
(5) Compensation is for seven months.
(6) Mr. Ricardi served as Vice President for Corporate Development of JMAR
until April 1999, at which time he ceased being an executive officer of
the Company. In December 1999, Mr. Ricardi ceased employment with the
Company. Compensation for 1997 is for eleven months and includes
$22,000 commissions on sales.
(7) Mr. Yoffe served as President of JMAR Precision Systems, Inc. until
March 1999.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth each grant of stock options and warrants made
during the fiscal year ended December 31, 1999 to each of the Named Officers.
Pursuant to Securities and Exchange Commission rules, the table also shows the
value of the options at the end of the terms if the stock price were to
appreciate annually by 5% and 10%, respectively. The assumed values may not
reflect actual value at the times indicated.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
SHARES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE PER EXPIRATION ----------------------
NAME (1)(7) YEAR SHARE DATE(2) 5% 10%
---- ------------ ---------- --------- ------------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
John S. Martinez 42,000(3) 14.49 $2.13 February 12, 2009 $56,280 $142,380
10,000(4) 3.45 $1.75 August 13, 2010 12,400 32,400
E. Fred Schiele 28,000(5) 9.66 $2.13 February 12, 2009 37,520 94,920
Joseph G. Martinez 13,500(6) 4.66 $2.13 February 12, 2009 18,090 45,765
Richard M. Foster 0 0 N/A N/A N/A N/A
Marvin W. Sepe 0 0 N/A N/A N/A N/A
John P. Ricardi 0 0 N/A N/A N/A N/A
Leonid Yoffe 0 0 N/A N/A N/A N/A
</TABLE>
(1) Such options were granted under the Company's 1991 or 1999 Stock Option
Plans. The exercise price of the stock options reported above was equal
to the fair market value of the Company's common stock at the date of
grant. The terms of each such option are determined by the Board of
Directors. The exercise price and tax withholding obligations related
to exercise may be paid by delivery of already owned shares, subject to
certain conditions.
(2) Options which are unvested at the time of termination of optionee's
employment expire at that time. Vested options also expire if not
exercised within 60 days after termination of optionee's employment or
one year following death of optionee if not exercised by optionee's
personal representative. Vested options issued to directors expire one
year following resignation as a director.
(3) These options are incentive stock options. 4,200 of these options are
currently exercisable and 4,200 become exercisable on February 12 of
each year thereafter through 2009.
10
<PAGE> 14
(4) These options are non-qualified stock options. They become exercisable
and vest one-third each year commencing on the first year after their
grant.
(5) These options are incentive stock options. 2,800 of these options are
currently exercisable and 2,800 become exercisable on February 12 of
each year thereafter through 2009.
(6) These options are incentive stock options. 1,350 of these options are
currently exercisable and 1,350 become exercisable on February 12 of
each year thereafter through 2009.
(7) These options contain a Reload Option feature whereby if the optionee
exercises the option in whole or in part using shares of Common Stock
owned by the optionee for at least six months, the Company shall grant
to the optionee a new option to purchase that number of shares equal to
the shares transferred to the Company in payment of the exercise price
of the option. In addition, if the optionee exercises the option in
whole or in part with cash, the Company shall grant to the optionee a
new option to purchase that number of shares equal to the amount of
cash paid divided by the market value of the Common Stock on the date
of exercise. In both cases, these Reload Options will have an exercise
price equal to the market price on the date of grant of the Reload
Option and are not exercisable until one year following the date of
grant.
AGGREGATED OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION
VALUES
The following table sets forth for each of the Named Officers (i) the shares
acquired and the value realized on each exercise of stock options, if any, by
said officers during the fiscal year ended December 31, 1999; (ii) the number of
shares of common stock underlying employment-related options and warrants
outstanding at December 31, 1999;and (iii) the value of such options and
warrants which are "in-the-money":
<TABLE>
<CAPTION>
SHARES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AND IN-THE-MONEY OPTIONS
WARRANTS AT AND WARRANTS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED ---------------------- ----------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
John S. Martinez 0 $0 200,175/473,061 $539,512/$828,239
E. Fred Schiele 0 0 33,333/144,667 $ 60,228/$266,609
Joseph G. Martinez 0 0 16,667/46,833 $ 33,917/$100,660
Richard M. Foster 0 0 36,666/13,468 $ 69,698/$27,261
Marvin W. Sepe 0 0 100,000/0 $ 156,000/$0
Leonid Yoffe 0 0 7,088/50,000 $ 11,722/$78,000
John P. Ricardi 0 0 39,356/20,000 $ 83,224/$43,080
</TABLE>
(1) Options are "in-the-money" if the fair market value of the underlying
common stock exceeds the exercise price of the option or warrant at
December 31, 1999. The fair market value of a share of common stock at
December 31, 1999 was $4.56 per share as quoted on the NASDAQ Stock
Market at the close of trading.
COMPARATIVE STOCK PERFORMANCE
Set forth below are line graphs which compare the percentage change in the
cumulative total stockholder return on the Company's Common Stock from December
31, 1994 through December 31, 1999 with the percentage change in the cumulative
total return over the same period of the (i) Russell 2000 Index and (ii) Russell
3000 Electronics: Semi-Conductors/Components Industry Index. This graph assumes
an initial investment of $100 on December 31, 1994 in each of the Company's
Common Stock, the Russell 2000 Index
11
<PAGE> 15
and the Russell 3000 Electronics: Semi-Conductors/Components Industry Index and
that all dividends, if any, were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
JMAR Technologies, Inc. $100 $200 $447 $476 $400 $859
Russell 2000 Index $100 $128 $150 $183 $178 $216
Semi-Conductors/ Components $100 $173 $280 $301 $475 $821
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
Set forth below is a report of the Compensation Committee with respect to the
Company's compensation policies during fiscal 1999 as they affect the Company's
Chief Executive Officer and the Company's other executive officers.
Compensation Policies for Executive Officers. The Company's
compensation policies for its executive officers are designed to provide
compensation levels that are competitive with those of other similar companies
and thereby to enable the Company to attract and retain qualified executives.
More specifically, the Company's compensation policies aim, through a
combination of base salary, annual bonus and equity-based compensation, to
motivate officers to assist the Company in meeting its annual and long-range
business objectives and thereby to enhance stockholder value. The cumulative
effect of the Company's compensation policies for executive officers is to tie
such compensation closely to the Company's performance.
Annual Cash Compensation. The Committee believes that the annual cash
compensation paid to executives should be commensurate with both the executive's
and the Company's performance. For this reason, the Company's executive cash
compensation consists of base compensation (salary) and variable incentive
compensation (annual bonus).
Base salaries for executive officers are established considering a
number of factors, including the Company's profitability; the executive's
individual performance and measurable contribution to the Company's success; and
pay levels of similar positions with comparable companies in the industry. The
Committee supports the Company's compensation philosophy of moderation for
elements such as base salary and
12
<PAGE> 16
benefits. Base salary decisions are made as part of the Company's annual review
process. Generally, base salaries are maintained at approximately the 50th
percentile of salaries paid by similar size, high technology companies.
Under the Management Incentive Bonus Plan ("MIBP"), an executive's
annual performance bonus award generally depends on three performance factors:
the overall financial performance of the Company and the performance of the
business unit for which the executive is accountable, non-financial goals, along
with the executive's individual performance. The performance objectives of the
Company and the business unit are derived from the Company's Board-approved
annual business plan, which includes specific financial performance targets
relating to revenue and profits for the fiscal year as well as non-financial
goals. Since the Company was profitable in those years, MIBP bonuses were paid
for fiscal years 1995, 1996, 1997 and 1998 (see page 9 above). Because the
Company's net and operating profits were lower in 1998 than in 1997, the bonus
awards to the CEO and the other Named Officers were correspondingly lower in
1998 than in 1997. Because the Company was not profitable in 1999, no cash
bonuses were paid to the Company's CEO, its President or the other members of
its Corporate Staff.
Equity Based Incentive Compensation. The Compensation Committee
believes that by providing executive officers with an equity interest in the
Company those officers are provided with additional incentives to work to
maximize stockholder value over the long term. Options or warrants to purchase
Company stock may be granted from one of three existing plans: the 1999 Stock
Option Plan, the 1991 Stock Option Plan, (substantially all options under which
have been granted), and the Precision Systems Incentive Plan (for grants to JPSI
employees). Pursuant to the Plans, the CEO and other executive officers (as well
as other key employees) may be periodically granted stock options at the then
fair market value of the Company's Common Stock. In addition, the CEO and
executive officers are awarded stock options with vesting schedules based upon
the goals established under the MIBP. In 1999, stock options were granted to
executive officers under the 1991 and 1999 Stock Option Plans (see page 10
above).
CEO Compensation. Dr. Martinez has been Chief Executive Officer since
he co-founded the Company in 1987. Pursuant to his employment agreement, the
Company agreed to pay Dr. Martinez an annual salary of not less than $175,000.
In fiscal year 1999, Dr. Martinez's base salary was $192,500. Dr. Martinez's
participation in the above stated plans includes incentives to maximize Company
profitability and share price on an annual basis. In addition, through his
equity ownership, Dr. Martinez shares with other stockholders of the Company a
significant stake in the long-range success of the Company's business.
Through these various compensation programs, the Board of Directors believes
that JMAR furthers its objectives of attracting, retaining and motivating the
best qualified executive officers and employees, and ultimately will serve to
increase JMAR's profitability and maximize shareholder value.
Compensation Committee:
/s/ John S. Martinez
James H. Banister, Jr.
C. Neil Beer
Vernon H. Blackman
Barry Ressler
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during fiscal year 1999 executive compensation was set by the
Board of Directors acting as the Compensation Committee. The Compensation
Committee included Dr. Martinez, the Company's Chief Executive Officer; however,
the compensation of Dr. Martinez was set by the Compensation Committee members
without the participation by Dr. Martinez. Except for Dr. Martinez, each member
of the Compensation Committee is neither an officer nor an employee of the
Company.
DIRECTOR COMPENSATION
Directors who are not salaried employees of the Company receive a retainer (the
"Retainer") of $1,000 per quarter and $1,000 for their attendance at each Board
of Directors meeting and Committee meeting and are reimbursed for their travel,
lodging and food expense incurred when attending such meetings. $500 of the
Board meeting compensation is paid in Company stock.
13
<PAGE> 17
In addition, the directors are eligible to participate in the Company's Stock
Option Plans on the same basis as key employees of the Company and grants of
options will be made by the Board of Directors on a case-by-case basis on such
terms as the Board in its discretion may provide. It has been the Company's
policy to make an annual grant of options to the directors. During the fiscal
year ended December 31, 1999, a grant of options to purchase 10,000 shares of
Common Stock was received by Messrs. Martinez, Banister, Beer, Ressler and
Blackman in their capacity as directors.
COMPENSATION PURSUANT TO PLANS
The Company has no defined benefit pension or actuarial plans under which its
executive officers participate.
INCENTIVE PLANS
As discussed in the Report of the Compensation Committee above, in 1993, JMAR
established a Management Incentive Bonus Plan (the "MIBP") based on profits
generated, as well as non-financial goals, and stock performance each year. The
Company was profitable in fiscal years 1995, 1996, 1997 and 1998. Accordingly,
MIBP cash bonuses were paid and options awarded in those years to those
employees deemed to have made the greatest contributions toward the Company's
ability to generate those profits. Because the Company was not profitable in
1999, no cash bonuses were paid to the Company's CEO, its President or the other
members of its Corporate staff.
In March 1998, the Board of Directors approved a resolution requiring that
starting with 1997, a substantial portion of each Management Incentive Bonus
earned by its senior officers be used (the "MIBP Stock Ownership Requirement")
by such officers to: 1) buy JMAR common shares in the Public Market; and/or 2)
exercise existing stock options or warrants, including payment of income taxes
(if any) resulting from such option or warrant exercises. The long term goal is
for each senior officer designated in the Beneficial Ownership table in this
Report to own JMAR shares having a market value of a minimum of one times his
annual salary. Once any such designated employee achieves that goal they will no
longer be required to allocate a specific portion of their bonus to the purchase
of additional JMAR shares unless their share holdings fall below that level. The
Company believes that this policy will provide additional incentives to the
Company's senior officers to maximize the Company's profits and share price over
the long term. Pursuant to the MIBP Stock Ownership Requirement, in 1999 Messrs.
Sepe and Joseph Martinez purchased 1,673 and 1,500 shares, respectively. In
2000, pursuant to the MIBP Stock Ownership Requirement, Mr. Sepe purchased 2,450
shares.
In addition to open market purchases pursuant to the MIBP Stock Ownership
Requirement, in 1999 Messrs. John Martinez and Joseph Martinez made open market
purchases of 45,000 and 5,000 shares of JMAR Common Stock, respectively.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
EMPLOYMENT AND CONSULTING AGREEMENTS
Pursuant to Dr. Martinez's employment agreement, the Company agreed to retain
him as Chief Executive Officer of the Company and to pay him an annual salary of
not less than $175,000 plus expenses and normal employee insurance benefits and
a $600 per month auto lease allowance. The Employment Agreement is automatically
renewable on an annual basis unless either party chooses to terminate it no
later than 60 days before the end of the year. If the employment agreement is
terminated by the Company without cause, Dr. Martinez would become entitled to
receive as severance pay an amount equal to 36 months pay.
Pursuant to Mr. Schiele's employment agreement, the Company retained him as
President and Chief Operating Officer of the Company and agreed to pay him an
annual salary of not less than $177,500 plus expenses and normal employee
insurance benefits and a $600 per month auto allowance. If the employment
agreement is terminated by the Company without cause, Mr. Schiele would become
entitled to receive as severance pay an amount equal to 12 months pay.
On March 29, 1993, the Company loaned Dr. Martinez $59,000 with interest at 6%
per annum to assist Dr. Martinez in paying certain income taxes that he
personally incurred in connection with a transaction that he undertook in
support of the Company. The loan amount, including accrued interest, was $88,344
on December 31, 1999. In February 2000, in recognition of his contributions to
the Company, the Board of Directors of the Company agreed to forgive the loan.
14
<PAGE> 18
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected Arthur Andersen LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 2000. Representatives of Arthur Andersen
will be present at the meeting with an opportunity to make a statement if they
desire to do so and such representatives will be available to respond to
appropriate questions from shareholders in attendance.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Stockholders who intend to submit proposals to be voted upon at the annual
meeting or who intend to nominate persons for election for the Board of
Directors must do so in accordance with the Company's Bylaws and applicable SEC
Rules. Nothing in the following discussion is meant to preclude discussion by
any shareholder of any business properly brought before the Annual Meeting.
INCLUSION IN COMPANY'S PROXY STATEMENT
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, some
stockholder proposals may be eligible for inclusion in the Company's 2001 proxy
statement. In order to qualify for inclusion, among other requirements,
stockholder proposals must be submitted in writing to the Secretary of the
Company no later than March 7, 2001. Stockholders interested in submitting a
proposal or a nomination are advised to contact knowledgeable counsel with
regard to the detailed requirements of applicable securities laws.
OTHER MATTERS TO COME BEFORE THE MEETING
Under the Company's Bylaws, a proposal or nomination that a stockholder does not
seek to include in the Company's proxy statement for its 2001 Annual Meeting,
but which the stockholder wishes to have considered and voted on at the 2001
Annual Meeting, must be submitted in writing to the Secretary of the Company not
later than May 22, 2001. If the date of the 2001 Annual Meeting is advanced or
delayed by more than 30 days from the anniversary date of the 2000 Annual
Meeting (August 10), the stockholder must submit any such proposal or nomination
no later than the close of business on the 75th day prior to the date of the
2001 Annual Meeting. The stockholder's submission must include certain specified
information concerning the proposal or nominee and information as to the
stockholder's ownership of common stock of the Company. Proposals or nominations
not meeting these requirements will not be entertained at the Annual Meeting. If
the stockholder submits the proposal or nomination prior to the deadline, but
does not conduct its own solicitation of shareholders in accordance with the
requirements of Rule 14a-4(c) (2) under the Securities Exchange Act of 1934, the
Company may exercise discretionary voting authority under proxies it solicits to
vote in accordance with its best judgment on any such proposal or nomination
submitted by a stockholder. Stockholders should contact the Secretary of the
Company in writing at 5800 Armada Drive, Carlsbad, CA 92009 to obtain additional
information as to the proper form and content of submissions.
OTHER BUSINESS
The Board of Directors does not intend to present any other business at the
meeting and knows of no other matters which will be presented at the meeting.
By Order of the Board of Directors
/s/ Dennis E. Valentine
Dennis E. Valentine
Secretary
Dated: June 27, 2000
15
<PAGE> 19
PROXY PROXY
JMAR TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of JMAR Technologies, Inc. hereby appoints Joseph G.
Martinez and Dennis E. Valentine and each of them, with full power of
substitution to each, proxies of the undersigned to represent the undersigned at
the 2000 Annual Meeting of the Shareholders of JMAR Technologies, Inc. to be
held on Thursday, August 10, 2000 at the Hilton La Jolla Torrey Pines Hotel,
10950 North Torrey Pines Road, La Jolla, California, at 2:00 p.m., local time,
and at any adjournment(s) thereof, with all powers, including voting rights,
which the undersigned would possess if personally present at said meeting on the
following:
(1) Election of five Directors of the Company to serve until the 2001 Annual
Meeting of Shareholders of JMAR Technologies, Inc. and until their respective
successors are duly elected and qualified.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary listed below
below)
John S. Martinez, James H. Banister, Jr., C. Neil Beer, Vernon H. Blackman, and
Barry Ressler.
(INSTRUCTIONS: To withhold authority for any individual nominee, write that
nominee's name in the space provided below.)
--------------------------------------------------------------------------------
<PAGE> 20
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS A CONTRARY DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR ALL OF THE NOMINEES FOR DIRECTOR LISTED ON REVERSE
SIDE.
The proxies (or, if only one, then that one proxy) or their substitutes acting
at the meeting may exercise all powers hereby conferred.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
The undersigned hereby revokes any prior proxy and ratifies and confirms all the
above-named proxies or their substitutes, and each of them, shall lawfully do or
cause to be done by virtue hereof.
The undersigned acknowledges receipt of the Notice of the 2000 Annual Meeting of
Shareholders and accompanying Proxy Statement dated June 27, 2000.
Dated: , 2000
-------------------------
------------------------------------
Signature
------------------------------------
Signature if held jointly
IMPORTANT: In signing this Proxy, please sign your name or names in the same way
as shown at left. When signing as a fiduciary, please give your full title. If
shares are registered in the names of two or more persons, each should sign.
IMPORTANT: PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 21
JMAR TECHNOLOGIES, INC.
FISCAL YEAR 1999
FINANCIAL INFORMATION APPENDIX
[IMAGE: ORBITING ATOMIC PARTICLES EMERGE FROM THE
X-RAY BURST GENERATED BY JMAR'S PXS SOURCES]
<PAGE> 22
JMAR TECHNOLOGIES, INC.
INDEX TO APPENDIX
<TABLE>
<S> <C>
Securities Information.......................................................... A-2
Five-Year Selected Financial Data............................................... A-3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... A-4
Report of Arthur Andersen LLP, Independent Public Accountants................... A-12
Consolidated Balance Sheets as of December 31, 1999 and 1998.................... A-13
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997............................................. A-14
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997....................................... A-15
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997............................................. A-16
Notes to Consolidated Financial Statements...................................... A-17
</TABLE>
A-1
<PAGE> 23
JMAR TECHNOLOGIES, INC.
SECURITIES INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market tier of
the Nasdaq Stock Market ("NASDAQ-NMS") under the symbol JMAR. On February 15,
2000, the Company called for redemption of its 2,449,749 Common Stock Purchase
Warrants which traded at that time on the Nasdaq National Market under the
symbol JMARW. Each Warrant was exercisable for one share of Common Stock at
$5.50 until March 20, 2000. After that time, the Warrants were no longer
exercisable, and holders had the right to receive only the redemption price of
$0.05 per Warrant. As of the redemption date, March 20, 2000, 2,442,444 Warrants
had been exercised and 7,305 Warrants were redeemed. The 1999 and 1998 high and
low transaction prices for the common stock as reported by NASDAQ-NMS are set
forth in the following table.
COMMON STOCK PRICE
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1998
First Quarter....................................... 3 1/2 2 7/16
Second Quarter...................................... 3 5/32 2 5/16
Third Quarter....................................... 2 3/4 1 19/32
Fourth Quarter...................................... 3 5/32 1 15/16
1999
First Quarter....................................... 2 3/8 1 13/16
Second Quarter...................................... 2 17/32 1 7/8
Third Quarter....................................... 2 1/32 1 1/2
Fourth Quarter...................................... 4 9/16 1 1/2
</TABLE>
There are approximately 14,000 holders of JMAR's common stock.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends in the future by the Company on its
Common Stock will be dependent on its earnings and financial condition and such
other factors considered relevant by the Company's Board of Directors.
A-2
<PAGE> 24
JMAR TECHNOLOGIES, INC.
FIVE-YEAR SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 12,210,490 $ 16,331,090 $ 21,461,627 $ 24,560,834 $ 24,767,740
Gross profit ............................... 4,879,420 6,692,136 8,830,316 9,187,891 7,051,994
Operating expenses ......................... 4,694,233 6,188,169 7,303,374 8,279,582 9,197,098
Income (loss) from operations .............. 185,187 503,967 1,526,942 908,309 (2,145,104)
Interest expense ........................... (321,162) (288,372) (181,562) (181,227) (240,928)
Interest and other income
(expense), net ........................... 212,240 388,974 104,905 61,963 137,038
Income (loss) before income
taxes .................................. 76,265 604,569 1,450,285 789,045 (2,248,994)
Income tax (provision) benefit ............. -- 175,000 345,000 (32,204) --
Net income (loss) .......................... 76,265 779,569 1,795,285 756,841 (2,248,994)
Net income (loss) per basic share .......... .01 .05 .11 .04 (.12)
Basic shares used in
computation of net income
(loss) per share ......................... 13,525,886 15,582,579 17,065,860 18,046,860 18,045,914
</TABLE>
CONSOLIDATED BALANCE SHEET DATA - DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital ............................ $4,655,087 $ 5,743,747 $ 9,634,527 $ 9,213,134 $ 7,468,743
Total assets ............................... 9,248,995 15,395,518 17,268,878 22,874,833 20,673,768
Short-term debt ............................ 1,526,929 2,317,861 922,246 2,693,975 5,195,490
Long-term liabilities ...................... 1,536,273 667,310 907,235 475,362 642,913
Stockholders' equity ....................... 5,085,202 9,368,905 12,488,212 13,253,179 10,909,461
</TABLE>
A-3
<PAGE> 25
JMAR TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company operates in two segments as follows: Microelectronics
Equipment and Semiconductor Products and Processes.
RESULTS OF CONSOLIDATED OPERATIONS
Net (loss) income for each of the fiscal years ended December 31, 1999,
1998 and 1997 was $(2,248,994), $756,841 and $1,795,285, respectively, while
operating (loss) income for those same periods was $(2,145,104), $908,309 and
$1,526,942, respectively. Revenues for 1999, 1998 and 1997 were $24,767,740,
$24,560,834 and $21,461,627, respectively. The net and operating (loss) income
reported for 1999 and 1998 include a number of special charges, gains and asset
writedown items that tend to obscure direct comparison of the results of those
two years. Therefore, Table 1 below was prepared to assist the reader in
evaluating the Company's results for those periods. It summarizes the Company's
Consolidated Statements of Operations for 1999 and 1998, itemizes the applicable
special items contained in the reported results for those years and presents the
results for those two years, excluding the special items.
Included in the net and operating loss for 1999 are inventory reserves of
$389,000 and employee termination accruals of $175,000. Included in the net loss
for 1999 is an asset writedown of $88,344. Included in net and operating incomes
for 1998 are asset writedowns of $150,000 and $100,000, respectively.
In addition to the impact of the special items, net and operating (loss)
income in 1999 and 1998 were also affected by a number of factors - including
rapid growth in the Company's semiconductor-related business in its
Semiconductor Products and Processes segment offset by a steep decline in sales
of the Company's higher-margin precision instruments for the computer industry
from its Microelectronics Equipment segment. JMAR's profitability was further
impacted by the substantial investments the Company made in research and
development to fuel future growth (see below).
A-4
<PAGE> 26
TABLE 1
SUMMARY
FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ending Quarter Ending
December 31 December 31
------------------------------------ ----------------------------------
Item 1999 1998 1999 1998
---- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 24,767,740 $24,560,834 $ 6,625,794 $8,397,860
Gross Profit 7,051,994 9,187,891 1,810,461 2,927,247
Income (Loss)
from Operations (2,145,104)(3) 908,309(1) (789,755)(3) 253,550(1)
Net Income (Loss) (2,248,994)(3)(4) 756,841(2) (952,739)(3)(4) 137,700(2)
Net Income (Loss)
Per Share:
Basic $ (.12) $ .04 $ (.05) $ .01
Diluted $ (.12) $ .04 $ (.05) $ .01
</TABLE>
SPECIAL ITEMS
(1) After Asset Writedown of $100,000
(2) After Asset Writedown of $150,000
(3) After Inventory Reserve of $389,000 and Employee Termination Accruals of
$175,000
(4) After Asset Writedown of $88,344
EXCLUDING SPECIAL ITEMS
<TABLE>
<CAPTION>
Year Ending Quarter Ending
December 31 December 31
---------------------- -------------------
1999 1998 1999 1998
---------- --------- -------- -------
<S> <C> <C> <C> <C>
Income (Loss) from Operations($) (1,581,104) 1,008,309 (225,755) 353,550
Net Income (Loss)($) (1,596,650) 906,841 (300,395) 287,700
Net Income (Loss)/Share (Diluted) $ (0.09) $ 0.05 $ (0.02) $ 0.02
</TABLE>
The Company's revenues in 1999 were negatively impacted by a decline in
1999 shipments of the Company's precision instrument products related to the
continuing slump in demand triggered by the 1998 Far East economic slowdown
which led to a decline in orders for the Company's products from the computer
disk drive industry offset in part by continued sustained growth in the
Semiconductor Products and Processes Segment and by the growth in 1999 of the
Company's lithography equipment sales to the biochip industry.
The increase in revenues for the year ended December 31, 1998 over the
year ended December 31, 1997 is generally attributable to increases in the
Company's semiconductor-related business primarily in X-ray lithography in the
Microelectronics Equipment Segment and semiconductor design and process
development in the Semiconductor Products and Processes Segment offset, in part,
by a decline in sales of the Company's precision instrument products in its
Microelectronics Equipment Segment.
The Company's ability to forecast orders for its precision instrument
products in its Microelectronics Equipment Segment continues to be somewhat
limited due to continuing marketplace uncertainties. In addition, certain of the
Company's revenues are from a limited number of customers. As a result, the
timing of receipt and shipment of orders for those customers could have a
material impact on quarterly results in 2000.
A-5
<PAGE> 27
During the past decade, JMAR has developed and manufactured a broad range
of high precision positioning and measurement systems to support the needs of
the semiconductor and computer disk drive industries to produce high-performance
micro-products. Several years ago, as the biotech industry began to productize
the fruits of its prior decades of research, JMAR initiated a program to adapt
certain of its precision manufacturing capabilities to support the expected
future needs of the biotech industry. Initially the focus of that activity was
on supplying the positioning technology required by DNA biochip manufacturers,
led by Affymetrix.
In recent years, a broader segment of the biotech industry began to define
their need to transition more of their operations from research to precision
manufacturing. In response, JMAR initiated an in house program to explore the
feasibility of adapting more of its established positioning, alignment and
metrology technology to serve the needs of that industry. Accordingly, the
Company has been investigating the requirements of many other customers and
potential customers in the biotechnology and biochip markets and is aggressively
marketing its products and technology to several companies in those markets.
JMAR believes that the biotech/biochip industry will continue to be a positive
contributor to the Company's growth in the future.
The biochip market place is rapidly evolving, with new manufacturing
technologies and new biochip manufacturers entering the market. As a result,
JMAR's current aligner systems may not be used in producing future generations
of biochips. To remain competitive, JMAR may be required to develop next
generation solutions for its current customers and for the new entrants to the
market. JMAR is working with the industry to participate in their future
development needs, but there can be no assurance that JMAR will continue to
receive significant orders of JMAR biochip aligner systems in the future or will
be able to develop successful next generation technologies in the biochip
market.
Gross margins for the fiscal years ended December 31, 1999, 1998 and
1997 were 28.5%, 37.4% and 41.1%, respectively. The lower gross margins for 1999
are primarily due to a continued decline in sales of the Company's higher margin
precision instruments for the computer industry, the build-up of expenses
associated with the rapid increase in the Company's semiconductor-related
business, competitive pricing pressures on certain products and a reserve for
excess inventory of $389,000. The Company continues to experience competitive
pressures on certain products, which may impact gross margins in the future. The
Company's rapidly expanding Semiconductor Products and Processes Segment
conducted by JSI is in the process of evolving from a lower profit margin
development business to a commercial business focused on the integrated circuit
replacement part and telecommunication products markets. JMAR believes that, as
this evolution progresses, a greater proportion of JMAR's sales will be
generated by higher profit margin commercial semiconductor products. Therefore,
to the extent that the Company's commercial semiconductor products begin to
generate a higher percentage of the Company's revenues, the Company's gross
margins should improve. The Company also expects that as its patented,
laser-driven advanced light products enter the marketplace and gain acceptance,
they will also substantially improve its gross profit margins.
The Company's profits in 1999 were also impacted by JMAR's continuing
investments to accelerate the time-to-market for several new high-performance
products for the microelectronics marketplace. Included are increases in payroll
costs with the addition of several senior technical specialists and managers to
direct and help speed the Company's new precision instrument, laser and X-ray
product development programs. As discussed below, the Company's product
development expenditures, including that portion of customer-funded efforts
directly related to the commercialization of JMAR's proprietary technologies,
were 30% of revenues in 1999.
Selling, general and administrative ("SG&A") expenses for the fiscal years
ended December 31, 1999, 1998 and 1997 were $6,916,804, $6,153,100 and
$6,194,333, respectively. The increase in SG&A expenses in 1999 is primarily due
to higher payroll costs related to the addition of senior technical and
management staff.
A-6
<PAGE> 28
The Company's research, development and engineering program (RD&E)
consists of two types: Customer-Funded RD&E (U.S. government and other
companies) and Company-Funded RD&E. Both types of RD&E are expensed when
incurred. Customer-Funded RD&E costs incurred, included in "Contract Costs of
Sales", totaled $5,144,993, $3,837,314 and $1,487,139 for the fiscal years ended
December 31, 1999, 1998 and 1997, respectively. The increase in Customer-Funded
RD&E expenditures for 1999 is primarily related to an increase of $444,762 in
the X-ray lithography program funding provided by DARPA, most all of which is
directed toward development of JMAR's X-ray lithography source technology for
the commercial semiconductor market and $862,917 related to the Company's
contract for the development of a unique microcircuit architecture and devices
for the replacement of obsolete integrated circuits. The Company believes this
latter technology has applicability in both the government and the commercial
marketplaces. Company-Funded RD&E costs are shown in "Operating Expenses" and
totaled $2,105,294, $2,026,482 and $1,699,010, for the fiscal years ended
December 31, 1999, 1998 and 1997, respectively. Hence, total RD&E expenses for
those three years were $7,250,287, $5,863,796 and $3,186,149, respectively.
Capitalized software costs of $179,573, $451,185 and $444,355 for the years
ended December 31, 1999, 1998 and 1997 are not included in the above amounts.
Including capitalized software costs, RD&E expenditures as a percentage of sales
were 30.0%, 25.7% and 16.9% for the years ended December 31, 1999, 1998 and
1997, respectively. The increase in RD&E expenditures is primarily related to
the continued development of PXS point X-ray sources for lithography for the
semiconductor industry and other metrology applications, the development of a
unique microcircuit architecture and devices for the replacement of obsolete
integrated circuits, the development of new software for the Company's test and
measurement systems and the engineering development of higher performance test
and measurement inspection systems for the semiconductor, biochip and disk drive
industries.
Included in 1999 is an accrual of $175,000 in termination costs for a
former employee. Included in 1998 is a writedown of $100,000 related to certain
fixed assets in the Semiconductor Products and Processes Segment. The
non-recurring item for 1997 includes a gain of approximately $2,839,000 from the
settlement of certain claims against the former principal shareholders of JMAR
Semiconductor offset, in part, by the writedown of certain assets primarily
related to the Semiconductor Products and Processes Segment in the amount of
$1,594,000 and costs incurred as a result of the reorganization of JMAR
Semiconductor in the amount of $655,031 resulting in a net gain of $589,969.
Interest expense for the fiscal years ended December 31, 1999, 1998 and
1997 was $240,928, $181,227 and $181,562, respectively. The increase in 1999 is
related to increased borrowings pursuant to the Company's working capital line
of credit.
Interest and other income (expense) for 1999 includes a writedown of
$88,344 of a note receivable from an officer of the Company. Interest and other
income (expense) for 1998 includes a writedown of $50,000 of a note receivable
from the defunct Santa Fe Laser Company.
Included in the Statement of Operations in 1997 is a tax benefit of
$345,000 related to the utilization by the Company of a portion of its net
operating loss carryforward.
RESULTS OF SEGMENT OPERATIONS
Microelectronics Equipment Segment
Revenue for the year ended December 31, 1999 as compared to the year ended
December 31, 1998 for the Microelectronics Equipment Segment decreased
$5,143,726 from $21,608,708 to $16,464,982 or 24%. This decrease primarily
reflects lower shipments of precision instruments to the disk drive industry,
worldwide. As a result, operating income of the Microelectronics Equipment
Segment for the year ended December 31, 1999 as compared to the year ended
December 31, 1998 was adversely affected as well, decreasing $3,231,064 from
income of $771,343 to a loss of $2,459,721. This decrease reflects the decrease
in revenues of the higher margin precision instruments as well as an increase in
product development expenditures.
A-7
<PAGE> 29
Semiconductor Products and Processes Segment
Revenue for the year ended December 31, 1999 as compared to the year ended
December 31, 1998 for the Semiconductor Products and Processes Segment increased
$5,350,632 from $2,952,126 to $8,302,758 or 181%. This growth reflects the
receipt in the last half of 1998 of two significant contracts from General
Dynamics Information Systems and TRW funded by the Defense Microelectronics
Activity. Because of the increase in revenues, operating income for the year
ended December 31, 1999 as compared to the year ended December 31, 1998
increased $177,651 from income of $136,966 to income of $314,617.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at December 31, 1999 and 1998 were $2,323,127
and $3,848,183, respectively. The (decrease) increase in cash and cash
equivalents for the fiscal years ended December 31, 1999, 1998 and 1997 was
$(1,525,056), $204,066 and $1,014,831, respectively. During the first quarter of
2000, the Company received a cash infusion of approximately $14.8 million from
the exercise of most all of its outstanding publicly and privately held warrants
and options (see below).
The decrease in cash for 1999 resulted primarily from cash used in
operations of $2,709,394, capital expenditures of $1,186,661, note payments of
$220,934, repurchases of stock of $134,639 and patent costs of $155,712 offset
in part by borrowings from the Company's working capital bank line of
$2,890,000.
The increase in cash for 1998 resulted primarily from borrowings under the
Company's working capital bank line of $1,625,000 and proceeds from the exercise
of options and warrants of $163,684 offset, in part, by capital expenditures of
$803,498, payments of notes payable of $376,400, repurchases of stock of
$349,203 and cash used in operations of $40,580. Inventories increased from
$4,685,883 at December 31, 1997 to $5,848,936 at December 31, 1998 primarily due
to an increase in inventory costs related to a contract at JMAR Semiconductor.
These costs were billed to the customer subsequent to December 31, 1998.
JMAR's operations will continue to require the use of working capital. The
Company's working capital availability as of December 31 for each of the five
years ending with 1999 is summarized in the Consolidated Balance Sheet Data on
page A-3. The working capital of the Company is generally funded through its
working capital line (the "Line") with Comerica Bank (the "Bank") and through
third-party contracts. Effective December 20, 1999, due to the Company's losses
in 1999, the Bank changed the Line from a $5 million unrestricted revolving line
of credit to a $5 million primarily formula-based line. Of that amount, $750,000
is unrestricted with advances on the balance based on a formula of 80 percent of
eligible accounts receivable, 35 percent of eligible inventories (up to $2.5
million), 50 percent of unbilled revenue on a long-term contract and up to
$500,000 for certain foreign receivables. The Line contains several covenants
relating to, among other matters, the maintenance of certain minimum income
levels and financial ratios, which, if not met by the Company, could impact the
availability of advances pursuant to the Line. Subsequent to December 31, 1999,
the Company received net proceeds of approximately $14.8 million from the
exercise of outstanding options and warrants, including its publicly traded
warrants. Of these funds, $4,990,000 were used to pay down the Line in its
entirety (however, the availability of the Line is still in effect). In
addition, these funds will be used to accelerate the Company's development of
high-value semiconductors for the rapidly growing Internet and Telecom markets
and to accelerate the development and commercialization of its other high value
proprietary products, as needed. Management believes that the Company has
adequate resources to fund operations and working capital requirements for the
next twelve months based on the current level of operations and business
conditions.
In September 1998, the Board of Directors authorized the repurchase, from
time-to-time, of up to $2 million of its own shares of common stock in the open
market, or in negotiated transactions, when they are available at prices the
Company considers attractive. As of March 14, 2000, the Company had
A-8
<PAGE> 30
repurchased 252,900 shares pursuant to this repurchase program at a total cost
of approximately $484,000.
At December 31, 1999, the Company had in excess of $27 million of Federal
net operating loss carryforwards subject to certain annual limitations, which
expire from 2004 through 2014. To the extent the Company has taxable income in
the future, these carryforwards may be used by the Company to reduce its cash
outlay for taxes.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
Although the date is now past January 1, 2000 and JMAR has not experienced
immediate adverse impact from the transition to the Year 2000, the Company
cannot provide assurances that it, its customers or its vendors have not been
affected in a manner that is not yet apparent. In addition, some computer
programs that were date-sensitive to the Year 2000 may not have been programmed
to process the Year 2000 as a leap year, and any negative consequential effects
may remain unknown. As a result, the Company will continue to monitor its Year
2000 compliance and the Year 2000 compliance of customers and vendors. Due to
the general uncertainty inherent in the Year 2000 problem, especially the
uncertainty regarding the Year 2000 compliance of customers and vendors, JMAR is
unable to determine at this time whether the Year 2000 problem will have a
material adverse effect on its business, results of operations and financial
condition.
To date JMAR has spent immaterial amounts to comply with accounting and
statutory requirements regarding the Year 2000. The Company believes that it
will spend minimal additional amounts for Year 2000 issues in the foreseeable
future. These assessments have not been independently verified.
RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". This SAB summarizes the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. This SAB
will become effective as of the quarter ending June 30, 2000. Management has not
determined the impact of the SAB on the Company's consolidated financial
statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this Form 10-K, which are not related to
historical results, including statements regarding JMAR's future sales or profit
growth, competitive position or products, projects or processes currently under
development and the ability of the Company to successfully introduce those
products into the commercial marketplace or to apply those products, projects or
processes to alternative applications are forward-looking statements that
necessarily are based on certain assumptions and are subject to certain risks
and uncertainties that could cause actual future performance and results to
differ materially from those stated or implied in the forward-looking
statements. These risks and uncertainties include concentration of sales to
certain markets and customers, delays in shipments or cancellations of orders,
failure of expected orders to materialize, fluctuations in margins, timing of
future orders, customer reorganizations, failure of advanced technology to
perform as predicted, uncertainties associated with the timing of the funding of
government contracts, fluctuations in demand, delays in development,
introduction and acceptance of new products, changing business and economic
conditions in various geographic regions, technical obsolescence of existing
products, technical problems in the development or modification of current
products or manufacturing processes, the impact of competitive products and
pricing, shifts in demand for the Company's products, the degree of success of
technology transfer (e.g., advanced lithography sources, etc.) to commercial
products, availability of working capital to support growth, continued
government funding of advanced lithography, successful integration of
acquisitions, other competitive factors and temporary cessation of operations at
one or more of its division facilities due to natural events such as floods,
earthquakes and fires.
A-9
<PAGE> 31
JMAR's future operating results are also dependent on its ability to
develop, manufacture and market, in a timely manner, innovative products that
meet customers' needs and the continued growth of the semiconductor, biochip,
telecommunications, computer disk drive and general microelectronics industries.
Inherent in this process are a number of risks that the Company must
successfully manage in order to achieve favorable operating results. The process
of developing new high technology products is complex and uncertain and requires
innovations that anticipate customer needs and technological trends. After the
products are developed, the Company must quickly manufacture them in sufficient
volumes at acceptable costs to meet demand and establish the necessary sales and
marketing capabilities to assure adequate and timely sales volume.
Although the Company has made substantial progress in its PXS X-ray source
development program, the X-ray output levels achieved as of the end of 1999
were, in the Company's judgment, less than that required for commercially viable
X-ray lithography. In order to prove that its technology works and to produce a
completed product, the Company must complete the development and integration of
these highly technical and complicated systems into a fully integrated
prototype. With any new technology, there is a risk that the market may not
appreciate the benefits of the product. In addition, the Company's X-ray source
system will compete against other developing technologies. Development by others
of new or improved products, processes or technologies may make the Company's
proposed product obsolete or less competitive. Also, the development of
sophisticated laser and X-ray products is a lengthy and capital intensive
process and is subject to unforeseen risks, delays, problems and costs.
Along with some of the risks discussed in the preceding paragraph, there
is no assurance that the Company will market its Britelight(TM) lasers as
stand-alone products or that, if the Company should do so, they will be accepted
in the marketplace.
In addition, portions of the Company's manufacturing operations are
sometimes dependent on the ability of a targeted base of suppliers to provide
core technology, sub-assemblies and common manufactured parts in time to meet
critical distribution and manufacturing schedules. From time-to-time the Company
could experience constrained supply of certain component parts due to a variety
of reasons, including strong demand in certain product lines as well as strong
demand in the industry. Such constraints could adversely affect JMAR's operating
results until alternate sourcing is developed.
JMAR Semiconductor is a "fabless" supplier of products. Accordingly, its
time schedule for the development, manufacture and sale of its products is
dependent on the availability of capacity at outside foundries. Currently, there
is a shortage of such capacity, worldwide.
As is the case for a large number of California-based companies, a
significant portion of the Company's operations are located near major
earthquake faults. The ultimate impact on the Company, significant suppliers and
the general infrastructure is unknown, but operating results could be materially
affected in the event of a major earthquake in close proximity to the Company's
facilities. The Company is predominantly self-insured for losses and
interruptions caused by earthquakes.
The operations of the Company involve the use of substances regulated
under various federal, state and international laws governing the environment.
It is the Company's policy to apply strict standards for environmental
protection even if not subject to regulations imposed by local governments. The
liability for environmental remediation and related costs is accrued when it is
considered probable and the costs can be estimated. Environmental costs are
presently not material to JMAR's operations or financial position.
Although JMAR believes that it has the necessary product offerings and
resources for continuing success, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its operations. Factors
external to the Company can result in volatility of the Company's common stock
price. Because of the foregoing factors, recent trends should not be considered
reliable indicators of future stock prices or financial results.
A-10
<PAGE> 32
The Company denominates its foreign sales in U.S. dollars and the Company
does not believe that foreign currency fluctuations will have a material adverse
impact on its ability to compete with its domestic-based competitors. Foreign
currency fluctuations, however, could make the Company's products less
affordable in foreign markets and thus, reduce the demand for such products. The
Company attempts to mitigate credit risk relative to sales to foreign customers
through its policy of generally requiring letters of credit.
A-11
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To JMAR Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of JMAR
Technologies, Inc. (formerly JMAR Industries, Inc.) (a Delaware corporation) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JMAR Technologies, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
San Diego, California
March 22, 2000
A-12
<PAGE> 34
JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
------------ ------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents ............................................................... $ 2,323,127 $ 3,848,183
Accounts receivable, net ................................................................ 7,079,435 7,766,961
Notes and other receivables ............................................................. 32,551 66,682
Inventories ............................................................................. 6,253,336 5,848,936
Prepaid expenses and other .............................................................. 901,688 828,664
------------ ------------
Total current assets ............................................................... 16,590,137 18,359,426
Receivable from officer ...................................................................... -- 83,212
Property and equipment, net .................................................................. 2,330,663 2,710,699
Other assets, net ............................................................................ 1,355,041 1,245,987
Goodwill, net ................................................................................ 397,927 475,509
------------ ------------
TOTAL ASSETS ........................................................................ $ 20,673,768 $ 22,874,833
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................................................ $ 2,456,928 $ 4,728,068
Accrued liabilities ..................................................................... 593,283 570,945
Accrued payroll and related costs ....................................................... 875,693 1,153,304
Line of credit .......................................................................... 4,990,000 2,100,000
Notes payable and capital lease obligations ............................................. 205,490 593,975
------------ ------------
Total current liabilities .......................................................... 9,121,394 9,146,292
------------ ------------
Notes payable, capital leases and other long-term liabilities, net of current portion ........ 642,913 475,362
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued
and outstanding as of December 31, 1999 and December 31, 1998 ....................... -- --
Common stock, $.01 par value; 40,000,000 shares authorized; Issued and
outstanding 18,074,836 shares as of December 31, 1999 and
18,080,853 shares as of December 31, 1998 ............................................ 180,748 180,809
Additional paid-in capital .............................................................. 36,499,238 36,593,901
Accumulated deficit ..................................................................... (25,770,525) (23,521,531)
------------ ------------
Total stockholders' equity ......................................................... 10,909,461 13,253,179
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 20,673,768 $ 22,874,833
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
A-13
<PAGE> 35
JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Product sales ................................................ $ 10,315,686 $ 16,340,637 $ 19,228,621
Contract sales ............................................... 14,452,054 8,220,197 2,233,006
------------ ------------ ------------
Total revenues ..................................... 24,767,740 24,560,834 21,461,627
Product costs of sales ....................................... 6,696,863 9,789,606 11,144,172
Contract costs of sales ...................................... 11,018,883 5,583,337 1,487,139
------------ ------------ ------------
Gross profit ....................................... 7,051,994 9,187,891 8,830,316
------------ ------------ ------------
Operating Expenses:
Selling, general and administrative ..................... 6,916,804 6,153,100 6,194,333
Research, development and engineering ................... 2,105,294 2,026,482 1,699,010
Asset writedowns and non-recurring items ................ 175,000 100,000 (589,969)
------------ ------------ ------------
Total operating expenses ........................... 9,197,098 8,279,582 7,303,374
------------ ------------ ------------
Income (loss) from operations ................................ (2,145,104) 908,309 1,526,942
Interest and other income (expense), net ..................... 137,038 61,963 104,905
Interest expense ............................................. (240,928) (181,227) (181,562)
------------ ------------ ------------
Income (loss) before income taxes ............................ (2,248,994) 789,045 1,450,285
Income tax (provision) benefit ............................... -- (32,204) 345,000
------------ ------------ ------------
Net income (loss) ............................................ $ (2,248,994) $ 756,841 $ 1,795,285
============ ============ ============
Net income (loss) per share:
Basic ................................................... $ (.12) $ .04 $ .11
============ ============ ============
Diluted ................................................. $ (.12) $ .04 $ .10
============ ============ ============
Shares used in computation of net income (loss) per share:
Basic ................................................... 18,045,914 18,046,860 17,065,860
============ ============ ============
Diluted ................................................. 18,045,914 19,112,634 18,601,119
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
A-14
<PAGE> 36
JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Total
------------------------ ---------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
----------- --------- ------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ...... 16,760,269 $ 167,603 -- $ -- $ 35,274,959 $(26,073,657) $ 9,368,905
Stock issued upon exercise of
warrants and options ......... 681,618 6,816 -- -- 661,539 -- 668,355
Debt converted to equity ........ 156,634 1,566 -- -- 467,622 -- 469,188
Issuance of stock ............... 1,008,252 10,083 -- -- 3,219,472 -- 3,229,555
Retirement of stock related to
acquisition of Cal ASIC ...... (715,821) (7,158) -- -- (3,035,918) -- (3,043,076)
Net income ...................... -- -- -- -- -- 1,795,285 1,795,285
----------- --------- ------ ------- ------------ ------------ ------------
Balance, December 31, 1997 ...... 17,890,952 178,910 -- -- 36,587,674 (24,278,372) 12,488,212
Stock issued upon exercise of
warrants and options ......... 213,812 2,138 -- -- 161,546 -- 163,684
Issuance of stock for services .. 44,184 442 -- -- 21,099 -- 21,541
Issuance of stock related to
acquisition of minority
interest of JSI .............. 24,045 240 -- -- 36,864 -- 37,104
Repurchases of stock ............ (184,300) (1,843) -- -- (347,360) -- (349,203)
Issuance of stock related to
acquisition of Continuum
Engineering .................. 92,160 922 -- -- 134,078 -- 135,000
Net income ...................... -- -- -- -- -- 756,841 756,841
----------- --------- ------ ------- ------------ ------------ ------------
Balance, December 31, 1998 ...... 18,080,853 180,809 -- -- 36,593,901 (23,521,531) 13,253,179
Stock issued upon exercise of
warrants and options ......... 38,464 384 -- -- 18,066 -- 18,450
Issuance of stock for services .. 6,948 69 -- -- 7,731 -- 7,800
Repurchase of stock ............. (68,600) (686) -- -- (133,953) -- (134,639)
Issuance of stock related to
acquisition of Continuum
Engineering .................. 12,171 122 -- -- 3,263 -- 3,385
Issuance of stock related to
acquisition of minority
interest of JSI .............. 5,000 50 -- -- 10,230 -- 10,280
Net loss ........................ -- -- -- -- -- (2,248,994) (2,248,994)
----------- --------- ------ ------- ------------ ------------ ------------
Balance, December 31, 1999 ...... 18,074,836 $ 180,748 -- $ -- $ 36,499,238 $(25,770,525) $ 10,909,461
=========== ========= ====== ======= ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
A-15
<PAGE> 37
JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................... $ (2,248,994) $ 756,841 $ 1,795,285
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ................................... 1,034,675 812,724 700,644
Services received in exchange for
common stock or warrants ..................................... 7,800 21,541 9,864
Asset writedowns and non-recurring items ........................ -- 100,000 (589,969)
Change in assets and liabilities, net of effects from
acquisitions, asset writedowns and non-recurring items:
(Increase) decrease in:
Accounts receivable, net ....................................... 687,526 (3,409,102) (1,434,015)
Inventories .................................................... (404,400) (1,133,215) (830,571)
Prepaid expenses and other ..................................... (73,024) (68,696) (556,109)
Other assets ................................................... 813,436 (592,031) (699,349)
Increase (decrease) in:
Customer deposits .............................................. (7,737) 9,997 (724,325)
Accounts payable and accrued liabilities ....................... (2,518,676) 3,461,361 377,057
------------ ------------ ------------
Net cash used in operating activities ............................... (2,709,394) (40,580) (1,951,488)
------------ ------------ ------------
Cash flows from investing activities:
Patent costs ........................................................ (155,712) (60,628) (47,451)
Capital expenditures ................................................ (1,186,661) (803,498) (763,697)
Increase in notes and other receivables ............................. (13,938) (4,834) (307,939)
Payments received on notes receivable ............................... -- 13,422 897,857
Acquisition costs, net of cash acquired ............................. (12,228) 37,103 --
------------ ------------ ------------
Net cash used in investing activities .......................... (1,368,539) (818,435) (221,230)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) under short-term debt agreements .......... 2,890,000 1,625,000 (969,281)
Net borrowings (payments) of notes payable, capital leases and
other long-term liabilities .................................... (220,934) (376,400) 273,222
Net proceeds from the issuance of common stock ...................... -- -- 3,215,253
Repurchases of stock ................................................ (134,639) (349,203) --
Net proceeds from the exercise of options and warrants ............. 18,450 163,684 668,355
------------ ------------ ------------
Net cash provided by financing
activities ................................................... 2,552,877 1,063,081 3,187,549
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ..................... (1,525,056) 204,066 1,014,831
Cash and cash equivalents, beginning of
period ................................................................. 3,848,183 3,644,117 2,629,286
------------ ------------ ------------
Cash and cash equivalents, end of period ................................. $ 2,323,127 $ 3,848,183 $ 3,644,117
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: On December 7, 1998, the Company
acquired 100% of the outstanding common stock of Continuum Engineering, Inc. As
consideration for the acquisition, the Company issued an aggregate of 92,160
shares of its common stock and an additional 12,171 earn-out shares issued in
1999 (See Note 3).
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
A-16
<PAGE> 38
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF THE COMPANY
The accompanying consolidated financial statements include the accounts of
JMAR Technologies, Inc. (formerly JMAR Industries, Inc.) (the "Company" or
"JMAR") and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company develops, manufactures and markets precision measurement,
yield enhancement and laser manufacturing systems, provides custom semiconductor
products for the microelectronics industry and is a leading developer of
advanced lithography sources for production of future higher performance
semiconductors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand and
cash invested in short-term securities that have original maturities of less
than 90 days.
b. Fair Value of Financial Instruments
The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses,
approximates fair value due to its short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its notes payable, capital lease obligations and borrowings under the
Company's line of credit approximates fair value.
c. Pervasiveness of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
d. Inventories
Inventories are carried at the lower of cost on the first-in, first-out
basis or market and are comprised of materials, direct labor and applicable
manufacturing overhead.
e. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
A-17
<PAGE> 39
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established for net deferred tax assets when it is uncertain that
such tax assets will be realized.
f. Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided over the asset's estimated useful life of three to ten years, using
the straight-line method. Maintenance and repairs are expensed as incurred.
Costs capitalized for self-constructed assets include direct material, labor and
applicable overhead.
g. Goodwill and Other Assets
Goodwill is amortized by systematic charges to income over the periods
estimated to be benefited, generally five to ten years. The Company periodically
reevaluates the original assumptions and rationale utilized in the establishment
of the carrying value and estimated lives of these assets. During 1997,
management determined that such an impairment had occurred relative to a portion
of its custom semiconductor business. Accordingly, the Company wrote-off a
portion of the goodwill associated with that business. Management believes that
there has been no impairment of goodwill as reflected in the Company's
consolidated financial statements as of December 31, 1999. Accumulated
amortization of goodwill was $663,037 and $561,312 at December 31, 1999 and
1998, respectively. Patent costs are amortized over ten years, and other assets,
including capitalized software, are amortized over not more than five years.
Accumulated amortization of other assets was $781,968 and $568,317 at December
31, 1999 and 1998, respectively. SFAS No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed," specifies the
accounting for the costs of internally developed or purchased computer software.
The Company charges all costs incurred in creating a computer software product
as research and development expense when incurred until technological
feasibility has been established.
h. Long-Lived Assets
The Company periodically evaluates the carrying value of its long-lived
assets and applies the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Under SFAS No. 121, long-lived assets and certain identifiable assets to be held
and used in operations are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. An impairment loss is recognized if the sum of the expected
long-term, undiscounted cash flows is less than the carrying amount of the
long-lived assets being evaluated. Management believes the carrying value of its
long-lived assets does not exceed their estimated net realizable value.
i. Revenues
Product revenues are generally recognized when the product is shipped and
all risks of ownership have passed to the customer. Contract revenues are
recognized based on the percentage of completion method wherein income is
recognized pro-rata over the life of the contract based on the ratio of total
incurred costs to anticipated total costs of the contract. Actual costs could
differ from these estimated costs. Estimated losses are fully charged to
operations when identified.
A-18
<PAGE> 40
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
j. Earnings Per Share
The Company presents earnings per share in accordance with the provisions
of SFAS No. 128, "Earnings Per Share" (See Note 13.)
k. Stock Options
The Company has adopted the disclosure only requirement of SFAS No. 123,
"Accounting for Stock-Based Compensation" (see Note 12).
l. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). This statement requires that an enterprise: (a)
classify items of other comprehensive income by their nature in a financial
statement; and (b) display the accumulated balance of other comprehensive income
separately from stockholders' equity in the equity section of a balance sheet.
For the years ended December 31, 1999 and 1998, the Company did not have any
elements of comprehensive income, and therefore, there was no difference in the
Company's net income or loss and comprehensive income or loss for those years.
m. Reclassifications
Certain reclassifications have been made to the prior-year financial
statements to conform with the 1999 presentation.
n. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarizes the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. This SAB
will become effective as of the quarter ending June 30, 2000. Management has not
determined the impact of the SAB on the Company's consolidated financial
statements.
3. ACQUISITIONS
On May 23, 1996, the Company acquired (the "Acquisition") approximately 94
percent of the outstanding common stock of California ASIC Technical Services,
Inc. ("Cal ASIC") (subsequently renamed JMAR Semiconductor). In October 1997,
the Company received approximately 716,000 freely tradable shares of Company
common stock with a market value of approximately $2,839,000 from the former
principal shareholders of Cal ASIC as settlement (the "Settlement") of certain
claims under the terms of the original purchase agreement. These shares were
retired by the Company. JMAR's ownership position in JMAR Semiconductor remained
unchanged as a result of the Settlement. This non- recurring gain of
approximately $2,839,000 has been offset in part by the writedown of certain
assets primarily related to JMAR Semiconductor in the amount of $1,594,000 and
costs incurred as a result of the reorganization of JMAR Semiconductor in the
amount of $655,031, resulting in a net gain of $589,969. In May 1998, the
Company acquired the remaining outstanding shares of JMAR Semiconductor.
On December 7, 1998, the Company acquired 100 percent of the outstanding
common stock of Continuum Engineering, Inc. ("CEI"). As consideration, the
Company issued to the sole shareholder of
A-19
<PAGE> 41
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CEI 92,160 shares of its Common Stock. The purchase price was negotiated at
arm's length, and the acquisition was accounted for as a purchase effective
December 1, 1998. In 1999, the Company issued 12,171 earn-out shares of Common
Stock to the sole shareholder of CEI, accounted for as additional purchase
price. Included in the Consolidated Balance Sheet at December 31, 1999 is
goodwill of $136,290 related to this acquisition.
4. INVENTORIES
At December 31, 1999 and 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials, components and sub-assemblies ..... $4,096,529 $3,127,225
Work-in-process .................................. 1,711,753 2,068,309
Finished goods ................................... 445,054 653,402
---------- ----------
$6,253,336 $5,848,936
========== ==========
</TABLE>
5. ACCOUNTS RECEIVABLE
At December 31, 1999 and 1998, accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Trade ...................................... $ 3,198,806 $ 2,762,563
Trade - unbilled ........................... 692,218 245,013
U.S. Government - billed ................... 1,074,641 3,988,231
U.S. Government - unbilled ................. 2,184,963 814,524
----------- -----------
7,150,628 7,810,331
Less-Reserve for doubtful accounts ......... (71,193) (43,370)
----------- -----------
$ 7,079,435 $ 7,766,961
=========== ===========
</TABLE>
All unbilled receivables at December 31, 1999 and 1998, are expected to be
billed and collected within one year. Payment to the Company, for performance on
certain U.S. Government contracts, is subject to progress payment audits by the
Defense Contract Audit Agency and are recorded at the amounts expected to be
realized.
6. PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Equipment and machinery ........................ $ 5,310,573 $ 5,003,891
Furniture and fixtures ......................... 609,130 609,659
Leasehold improvements ......................... 130,062 106,462
----------- -----------
6,049,765 5,720,012
Less-Accumulated depreciation .................. (3,719,102) (3,009,313)
----------- -----------
$ 2,330,663 $ 2,710,699
=========== ===========
</TABLE>
A-20
<PAGE> 42
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases. Minimum
future rental payments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Operating Leases
----------------
<S> <C>
2000 ............................................................. $ 374,658
2001 ............................................................. 433,968
2002 ............................................................. 365,572
2003 ............................................................. 140,630
2004 ............................................................. 123,000
----------
$1,437,828
==========
</TABLE>
Related rent expense was $491,159, $380,748 and $363,339 for the years
ended December 31, 1999, 1998 and 1997, respectively.
The Company is a party to a financial services agreement with Sands
Brothers & Co. Inc., ("Sands") which provides for the provision of certain
financial services by Sands. Although the Company does not believe its publicly
traded Warrant exercise program was covered by this agreement, it offered Sands
the right to act as Warrant solicitation agent. When Sands failed to perform as
such more than one month after being asked, the Company retained another
investment banking firm to do so. In February 2000, Sands asserted that it was
entitled to up to 10% of the proceeds from the exercise of the Company's
publicly traded Warrants, which is twice the fee provided for in the Company's
original warrant solicitation agreement. In March 2000, the Company filed a
Declaratory Relief Action in the U.S. District Court in San Diego which seeks a
judicial interpretation that the financial services agreement with Sands does
not apply to the Company's Warrant exercise program. The Company believes any
claim to a fee by Sands is without merit and intends to vigorously contest any
such claims.
The Company has entered into employment agreements with several of its key
employees.
8. NOTES PAYABLE
Notes payable as of December 31, 1999 and 1998, was as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Working capital line of credit in the amount of $5,000,000 with Comerica Bank -
California. Advances bear interest at prime rate. The line is renewable at the
Bank's option yearly on June 1st and interest on the line is payable monthly.
Advances are secured by all assets of the Company. The bank agreements contain
covenants, among other items, relating to ncome levels and financial ratios. The
balance was paid in full in March, however, the availability of the line
is still in effect................................................................. $ 4,990,000 $ 2,100,000
Note payable, due in monthly principal installments of $10,417 plus interest
through October 2000, interest at prime plus 1.25%, secured by
all assets of the Company.......................................................... 84,362 218,741
Note payable, due in monthly principal installments of $10,417 plus interest at
prime plus .5% through May 2002, secured by all assets
of the Company..................................................................... 322,913 447,917
</TABLE>
A-21
<PAGE> 43
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<S> <C> <C>
Note payable, due in monthly principal installments plus interest at prime
starting June, 2000 through May 2004, secured by certain assets of the
Company......................................................................... $350,000 $187,462
Capital leases.................................................................. - 131,115
Other notes payable............................................................. 1,128 84,102
----------- -----------
5,748,403 3,169,337
Less: Current portion........................................................... (5,195,490) (2,693,975)
----------- -----------
$ 552,913 $ 475,362
=========== ===========
</TABLE>
The weighted average interest rate on the loan with Comerica
Bank-California was 7.38% and 8.6% for 1999 and 1998, respectively. The maximum
amount outstanding was $4,990,000 and $3,000,000 and the average amount
outstanding was $2,290,417 and $943,750 during 1999 and 1998, respectively.
Interest paid for the years ended December 31, 1999, 1998 and 1997 was
$219,518, $160,966 and $162,488, respectively.
Future principal payments on long-term debt are as follows:
<TABLE>
<S> <C>
2000................................................................. $120,000
2001................................................................. 196,410
2002................................................................. 166,284
2003................................................................. 90,966
2004................................................................. 99,253
--------
$672,913
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
During 1996, the Company renewed the employment contract with its Chief
Executive Officer, Dr. John S. Martinez to provide for a yearly salary of not
less than $175,000. In February 2000, the Board of Directors of the Company
agreed to forgive an interest bearing loan in the amount of $88,344 made to Dr.
Martinez in 1993.
10. INCOME TAXES
For the year ended December 31, 1997, the Company has recorded a tax
benefit of $345,000, related to the estimated future utilization of net
operating loss carryforwards. The provision for federal and state income taxes
for the year ended December 31, 1998 is for alternative minimum taxes. The
Company paid taxes of $32,204 in 1998.
At December 31, 1999, the Company had Federal net operating loss
carryforwards as follows:
A-22
<PAGE> 44
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
EXPIRES
-------
<S> <C>
2004.............................................................. $ 1,184,000
2005.............................................................. 2,840,000
2006.............................................................. 961,000
2007.............................................................. 4,546,000
2008.............................................................. 6,932,000
2009.............................................................. 6,860,000
2010.............................................................. 2,265,000
2011.............................................................. 585,000
2014.............................................................. 1,566,000
-----------
Total............................................................. $27,739,000
===========
</TABLE>
The Company has approximately $2,064,000 of temporary differences that
will offset future taxable income subject to the change in ownership limitations
discussed below.
Realization of future tax benefits from utilization of the net operating
loss carryforwards for income tax purposes is limited by the change in ownership
(as defined for Federal Income Tax Reporting Purposes) as a result of the
Company's initial public offering in May 1990. As a result of additional
financings in 1992 and 1993, additional ownership changes have occurred which
restrict the Company's ability to utilize its net operating loss carryforwards
and any "built in losses." In addition, the net operating losses of acquired
companies are also subject to separate change of ownership limitations. Of the
above net operating loss carryforwards, annual limitations of approximately
$813,000 apply to approximately $4,537,000 of Company and acquired company loss
carryforwards. Approximately $23,202,000 of the net operating loss carryforwards
are not subject to annual limitations.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
DEFERRED TAX ASSETS:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net operating loss carryforwards ................. $ 9,431,000 $ 8,899,000
Losses from equity and other investments ......... 492,000 492,000
Other ............................................ 209,000 16,000
------------ -----------
Total gross deferred tax assets ......... 10,132,000 9,407,000
Less valuation reserve .................. (9,612,000) (8,887,000)
------------ -----------
Net deferred tax asset .................. $ 520,000 $ 520,000
============ ===========
</TABLE>
The valuation reserve as of December 31, 1999 represents deferred tax
assets which management believes, based on the Company's history of operating
losses, may not be realized in future periods.
The effective income tax rate for 1999, 1998 and 1997 varied from the
statutory federal income tax rate as follows:
A-23
<PAGE> 45
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate ................ (34)% 34% 34%
State income tax ................................. (6) 6 6
Permanent differences ............................ 1 2 1
Benefit recorded due to net operating loss
carryforward position .......................... 39 (38) (65)
---- ---- ----
-- 4% (24)%
==== ==== ====
</TABLE>
11. STOCKHOLDERS' EQUITY
During the year ended December 31, 1997, the Company received net proceeds
of approximately $3,898,000 from the private placements of approximately
1,008,000 shares of common stock and the exercise of warrants and options into
approximately 682,000 shares of common stock.
During the year ended December 31, 1998, the Company received net proceeds
of approximately $164,000 from the exercise of warrants and options into
approximately 214,000 shares of common stock.
During the year ended December 31, 1999, the Company received net proceeds
of approximately $18,450 from the exercise of warrants and options into
approximately 38,464 shares of common stock. Subsequent to December 31, 1999,
the Company received net proceeds of approximately $14.8 million from the
exercise of warrants and options into approximately 3.8 million shares of common
stock.
12. STOCK-BASED COMPENSATION PLANS
The Company has five stock option or warrant plans, the 1988 Stock Option
Plan (the "1988 Plan"), the 1991 Stock Option Plan (the "1991 Plan"), the 1999
Stock Option Plan (the "1999 Plan"), the Management Anti-Dilution Plan (the
"Anti-Dilution Plan"), and an incentive plan which provides for the issuance of
warrants to JPSI employees (the "JPSI Plan"). The Company accounts for these
plans under APB Opinion No. 25, under which no compensation cost has been
recognized. Had compensation cost for these plans been determined consistent
with SFAS No. 123 the Company's net (loss) income and (loss) earnings per share
would have been the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss): As Reported $(2,248,994) $756,841 $1,795,285
Pro Forma (2,488,380) 403,764 1,492,559
Basic EPS: As Reported (.12) .04 .11
Pro Forma (.14) .02 .09
Diluted EPS: As Reported (.12) .04 .10
Pro Forma (.14) .02 .08
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years.
The Company was authorized to grant options or warrants to its employees
(including directors) and consultants for up to 120,000 shares under the 1988
Plan, 1,480,000 shares under the 1991 Plan,
A-24
<PAGE> 46
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
900,000 shares under the 1999 Plan, 806,637 shares under the Anti-Dilution Plan,
and 450,000 shares under the JPSI Plan. As of December 31, 1999, the Company has
granted options for 99,168 shares under the 1988 Plan, 1,479,480 options under
the 1991 Plan, 20,000 options under the 1999 Plan, 424,246 warrants under the
Anti-Dilution Plan, and 225,000 warrants under the JPSI Plan. In addition,
50,000 non-qualified options have been granted to an employee outside of the
above plans. Under all Plans the option or warrant exercise price is equal to or
more than the stock's market price on date of grant.
A summary of the status of the total number of stock options or
warrants pursuant to all five of the above "plans" as of December 31, 1997, 1998
and 1999 and changes during the years then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- -------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of year 1,920,605 $2.66 1,589,752 $2.54 1,319,369 $2.69
Granted 383,797 1.70 521,067 2.78 587,500 2.67
Exercised (9,500) 0.82 (95,214) 0.90 (70,764) 2.27
Forfeited (192,551) 2.67 (95,000) 3.18 (246,353) 3.69
-------- --------- ---------
Outstanding at end of year 2,102,351 2.70 1,920,605 2.66 1,589,752 2.54
-------- --------- ---------
Exercisable at end of year 729,479 533,294 375,071
Weighted average fair value
of options or warrants
granted 1.70 2.78 2.51
</TABLE>
101,556 of the 2,102,351 options and warrants outstanding at December 31,
1999 have exercise prices between $.53 and $1.09 with a weighted average
exercise price of $.93 and a weighted average remaining contractual life of 5.8
years. All of these options and warrants are exercisable. 969,259 of the options
and warrants outstanding at December 31, 1999 have exercise prices between $1.55
and $2.94 with a weighted average exercise price of $2.38 and a weighted average
remaining contractual life of 8.2 years. 412,802 of these options and warrants
are exercisable. 886,536 of the options and warrants at December 31, 1999 have
an exercise price of $3.00 with a weighted average exercise price of $3.00 and a
weighted average remaining contractual life of 3.8 years. 184,790 of these
options and warrants are exercisable. 145,000 of the options and warrants
outstanding at December 31, 1999 have exercise prices between $3.13 and $4.56
with a weighted average exercise price of $4.19 and a weighted average remaining
contractual life of 8.1 years. 30,331 of these options and warrants are
exercisable.
The fair value of each option and warrant grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1998 and 1999: risk-free
interest rate of approximately 6 percent; expected dividend yields of 0 percent,
expected lives of 6 years, and expected volatility of 75 percent.
13. EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share". Basic
earnings per common share was computed by dividing net (loss) income by the
weighted average number of shares of common stock outstanding during the year.
Diluted (loss) earnings per common share for the years
A-25
<PAGE> 47
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ended December 31, 1999, 1998 and 1997, was computed by dividing net (loss)
income by the sum of the weighted average number of shares of common stock
(18,045,914, 18,046,860 and 17,065,860 for 1999, 1998 and 1997, respectively)
plus dilutive employee stock options and warrants (130,260 and 314,276 for 1998
and 1997, respectively) and other dilutive warrants and options (935,514 and
1,220,983 for 1998 and 1997, respectively).
14. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which required the Company to report
operating information by segment. In the Company's Form 10-K for the year ended
December 31, 1998, three segments were reported. These three segments were the
Precision Systems Segment, the Contract Research and Development Segment and the
Semiconductor Products and Processes Segment.
During 1999, the Company combined the Precision Systems and Contract
Research and Development Segments to form the Microelectronics Equipment
Segment. The Company's two Segments offer varying products and services that are
affected by different economic conditions. Further, the Segments reflect the
manner in which the Company now views the operating segments.
Microelectronics Equipment Segment: This segment includes the manufacture,
marketing and sale of the Company's measurement and inspection systems,
positioning and motion control systems and biotech processing systems. This
segment also includes the development of the Company's microtechnology emerging
products, including: next generation X-ray lithography sources and other
non-lithography X-ray systems for inspecting tomorrow's high-performance
semiconductors; ultra-precision laser machining systems; and other leading-edge
products based on its patented laser technology.
Semiconductor Products and Processes Segment: Using advanced design and
engineering tools and established foundry relationships with semiconductor
producers, this "fabless" supplier of semiconductors focuses on the development
and delivery of high-performance custom microcircuits for a wide range of
commercial, medical and military electronics uses. This segment also provides
high value services related to the upgrade and enhancement of a CMOS integrated
circuit fabrication facility and related wafer processing technology for the
low-volume and prototype manufacture of electronic circuits used in operational
military systems.
The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its operating
segments primarily based on revenues and operating income. Corporate costs are
generally allocated to the segments.
Segment information for the years 1999, 1998 and 1997 was as follows:
A-26
<PAGE> 48
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
SEMICONDUCTOR
MICROELECTRONICS PRODUCTS &
EQUIPMENT PROCESSES CORPORATE TOTAL
---------------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
1999:
Revenues $16,464,982 $8,302,758 $ -- $ 24,767,740
Operating income
(loss) (2,459,721) 314,617 -- (2,145,104)
Total assets 14,782,832 3,592,933 2,298,003 20,673,768
Capital expenditures 531,872 646,429 8,360 1,186,661
Depreciation and
amortization 744,622 271,630 18,423 1,034,675
1998:
Revenues 21,608,708 2,952,126 -- 24,560,834
Operating income 771,343 136,966 -- 908,309
Intersegment cost
reimbursement 688,144 -- -- 688,144
Total assets 13,592,972 4,895,127 4,386,734 22,874,833
Capital expenditures 664,229 113,492 25,777 803,498
Depreciation and
amortization 631,617 124,258 56,849 812,724
1997:
Revenues 21,183,834 277,793 -- 21,461,627
Operating income
(loss) 1,588,855 (61,913) -- 1,526,942
Total assets 11,411,434 1,924,309 3,933,135 17,268,878
Capital expenditures 516,557 234,681 12,459 763,697
Depreciation and
amortization 447,485 189,184 63,975 700,644
</TABLE>
In the table above, Corporate includes income and expenses not allocated
to reportable segments. Corporate assets are principally cash, deferred income
taxes and other assets.
Within the Microelectronics Equipment segment, the Measurement and
Inspection Systems product line accounted for 19 percent and 44 percent of the
Company's revenues in 1999 and 1998, respectively. In addition, the Lithography
Systems for Bio-Medical Applications product line accounted for 13 percent and 3
percent of the Company's revenues in 1999 and 1998, respectively. Within the
Semiconductor Products and Processes segment, the Technology Services product
line accounted for 33 percent and 8 percent of the Company's revenues in 1999
and 1998, respectively.
SIGNIFICANT CUSTOMERS
Sales to the United States Government aggregated $14,284,957, $8,220,197
and $2,062,131 in 1999, 1998 and 1997, respectively. Within the Microelectronics
Equipment segment, sales to one customer totaled $2,555,500, $7,279,778 and
$8,285,304 in 1999, 1998 and 1997, respectively. In addition, in 1999, sales to
another customer totaled $3,324,580. In January 2000, the Company received a
$1.8 million order from this customer. However, the Company understands that the
customer is considering its future needs for JMAR's current alignment systems,
as well as the need to transition to alternate technologies for the manufacture
of biochips. As a result, there can be no assurance that the Company will
receive any further significant orders for its biochip alignment systems from
this customer.
A-27
<PAGE> 49
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EXPORT SALES
The following table presents revenues by country based on where the
product was shipped to or where the services were provided.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
United States $21,954,053 $16,605,291 $12,523,252
Mexico 770,623 4,723,499 3,619,195
Malaysia 843,399 1,801,438 1,830,602
Costa Rica 11,809 522,015 263,059
Hong Kong -- -- 1,548,198
Others 1,187,856 908,591 1,677,321
----------- ----------- -----------
Total $24,767,740 $24,560,834 $21,461,627
=========== =========== ===========
</TABLE>
All assets of the Company are located in the United States.
15. SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1999, the Company received net proceeds of
approximately $14.8 million from the exercise of approximately 3.8 million
outstanding options and warrants, including its publicly traded warrants. Of
these funds, $4,990,000 were used to pay down the Company's working capital line
of credit (the "Line").
The following unaudited pro forma condensed consolidated balance sheets
give effect to the exercise of the warrants and options and receipt of the
proceeds and payoff of the Line as if they had occurred on December 31, 1999.
<TABLE>
<CAPTION>
ASSETS Historical Pro Forma
---------- ---------
(in 000's)
<S> <C> <C>
Cash and cash equivalents................................ $ 2,323 $12,133
Other current assets..................................... 14,267 14,267
Other assets............................................. 4,084 4,084
------- -------
TOTAL ASSETS........................................ $20,674 $30,484
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit........................................... $ 4,990 $ --
Other current liabilities................................ 4,131 4,131
Long-term liabilities.................................... 643 643
Stockholders' equity..................................... 10,910 25,710
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY............ $20,674 $30,484
======= =======
</TABLE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results for the years
ended December 31, 1999 and 1998.
A-28
<PAGE> 50
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
NET
YEAR ENDED (LOSS)
DECEMBER 31, 1999 REVENUES GROSS PROFIT NET (LOSS) PER SHARE
----------------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
December 31 $6,625,794 $1,810,461(1) $(952,739)(2) $(0.05)
September 30 4,677,464 1,610,233 (438,897) (0.02)
June 30 6,769,017 1,968,411 (263,953) (0.01)
March 31 6,695,465 1,662,889 (593,405) (0.03)
</TABLE>
<TABLE>
<CAPTION>
NET
YEAR ENDED INCOME
DECEMBER 31, 1998 REVENUES GROSS PROFIT NET INCOME PER SHARE
----------------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
December 31 $8,397,860 $2,927,247 $137,700 $0.01
September 30 5,799,458 2,352,661 301,937 0.02
June 30 6,063,437 2,245,167 299,121 0.02
March 31 4,300,079 1,662,816 18,083 0.00
</TABLE>
(1) After inventory reserve of $389,000.
(2) After inventory reserve of $389,000, employee termination accrual of
$175,000 and asset writedown of $88,344.
A-29
<PAGE> 51
COMPANY PROFILE
JMAR Technologies, Inc. is an agent for dynamic change in the
semiconductor-driven world of high technology. The Company not only designs and
provides advanced semiconductors for the burgeoning telecommunications and other
industries, but originates and then distills scientific theory into the tools
that will enable industry to produce the ever-smaller, faster-operating, more
powerful microelectronic and medical products of tomorrow. Such tools include
unique new X-ray light sources, now in advanced development, to enable the
creation of much higher performance semiconductor circuits than can be produced
today using conventional technologies. They also include the ultra-precise
machines that semiconductor manufacturers require to inspect and control the
production of the thousands or millions of microscopic circuit pathways
contained in each semiconductor.
CORPORATE OFFICES
CORPORATE HEADQUARTERS
JMAR Technologies, Inc.
3956 Sorrento Valley Blvd.
San Diego, CA 92121
(858) 535-1706
JMAR PRECISION SYSTEMS, INC.
9207 Eton Avenue
Chatsworth, CA 91311
(818) 700-8977
JMAR SEMICONDUCTOR, INC.
13845 Alton Parkway
Irvine, CA 92618
(949) 581-9024
JMAR RESEARCH, INC.
3956 Sorrento Valley Blvd.
San Diego, CA 92121
(858) 535-1706
STOCK REGISTRAR AND TRANSFER AGENT
American Securities Transfer, Inc.
12039 W. Alameda Parkway, Suite Z-2
Lakewood, CO 80228
(303) 986-5400
INDEPENDENT AUDITORS
Arthur Andersen LLP
701 B Street
San Diego, CA 92101
ANNUAL MEETING OF SHAREHOLDERS
Thursday, August 10, 2000, 2:00p.m.
Hilton La Jolla Torrey Pines
10950 North Torrey Pines Road
La Jolla, CA 92037
(858) 558-1500
JMAR Technologies, Inc.
3956 Sorrento Valley Blvd.
San Diego, CA 92121
ph. (858) 535-1706
www.jmar.com
